The Underlying Return-Generating Factors for REIT Returns: An Application of Independent Component Analysis
AbstractMultifactor approaches to real estate returns have emphasized a macro-variables approach in preference to the latent factor approach originally used in arbitrage pricing theory. Use of high-frequency data, trading strategies and growing emphasis on the risks of extreme events makes the macrovariable procedure problematic. This article explores an alternative to the principal components analysis approach: independent components analysis (ICA). ICA seeks independence and maximizes a chosen risk parameter. We apply an ICA procedure based on a kurtosis maximization algorithm to real estate investment trust (REIT) data. The results show that ICA successfully captures kurtosis characteristics of REIT returns, offering possibilities for developing of risk management strategies that are sensitive to extreme events and tail distributions, augmenting traditional mean-variance approaches. Copyright 2007 American Real Estate and Urban Economics Association
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Bibliographic InfoArticle provided by American Real Estate and Urban Economics Association in its journal Real Estate Economics.
Volume (Year): 35 (2007)
Issue (Month): 4 (December)
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Other versions of this item:
- Colin Lizieri & Stephen Satchell & Qi Zhang, 2006. "The Underlying Return Generating Factors for REIT Returns: An Application of Independent Component Analysis," Real Estate & Planning Working Papers rep-wp2006-12, Henley Business School, Reading University.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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