The Journal of Real Estate Finance and Economics

, Volume 56, Issue 2, pp 183–216 | Cite as

Asymmetric Dependence in Real Estate Investment Trusts: An Asset-Pricing Analysis



REITs are often assumed to be defensive assets having a low correlation with market returns. However, this dependence is not symmetric across the joint-return distribution. Disappointment-averse investors with state-dependent preferences attach (dis-)utility to investments exhibiting (lower-tail) upper-tail asymmetric dependence. We find strong empirical evidence that investors price this asymmetric dependence in the cross section of US REIT returns. In particular, we show that REIT stocks with lower-tail asymmetric dependence attract a risk premium averaging 1.3 % p.a. and REIT stocks exhibiting upper-tail asymmetric dependence are traded at discount averaging 5.8 % p.a. We find no evidence that the equity β is positively priced in US REIT returns. Our findings imply that traditional estimators of REIT cost of capital and performance measurement are likely to be substantially misrepresentative.


REITs Asymmetric dependence Asset pricing Tail risk Downside risk β JAdj 


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© Springer Science+Business Media New York 2017

Authors and Affiliations

  1. 1.The University of SydneySydneyAustralia

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