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Effects of structural changes on the risk characteristics of REIT returns

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  • Wu, Pei-Shan
  • Huang, Chien-Ming
  • Chiu, Chien-Liang
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    Abstract

    This investigation provides evidence and identifies two important structural changes in the risk characteristics of real estate investment trusts (REITs), namely, the 1993 tax reform and the inclusion of REITs in the mainstream S&P indices in 2001. Using daily data from 1989 to 2008, this study finds that institutional investors tended to increase their investment in REITs following the 1993 tax reforms, and these increases in institutional investment are significantly reducing exposure to interest rate risk, which may result from the benefits of external monitoring. Additionally, the inclusion of REITs in the Standard and Poor's mainstream indices since 2001 has increased the market risk of REITs, led to associated returns behaving more like those of stocks, and improved the market efficiency in processing new information. These observation results demonstrate these two structural changes in the risk characteristics of REIT returns. Finally, the study results confirm that the shape of the distribution of REIT returns varies among sub-samples, indicating that risk management is increasingly important.

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    Bibliographic Info

    Article provided by Elsevier in its journal International Review of Economics & Finance.

    Volume (Year): 20 (2011)
    Issue (Month): 4 (October)
    Pages: 645-653

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    Handle: RePEc:eee:reveco:v:20:y:2011:i:4:p:645-653

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    Web page: http://www.elsevier.com/locate/inca/620165

    Related research

    Keywords: Structure changes Real estate investment trusts Market efficiency;

    References

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    1. Jonathan Wiley & Leonard Zumpano, 2009. "Institutional Investment and the Turn-of-the-Month Effect: Evidence from REITs," The Journal of Real Estate Finance and Economics, Springer, vol. 39(2), pages 180-201, August.
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    15. Lin, Cho-Min & Lee, Yen-Hsien & Chiu, Chien-Liang, 2009. "Structural changes in foreign investors' trading behavior and the corresponding impact on Taiwan's stock market," Research in International Business and Finance, Elsevier, vol. 23(1), pages 78-89, January.
    16. Ming-Chih Lee & Jung-Bin Su & Hung-Chun Liu, 2008. "Value-at-risk in US stock indices with skewed generalized error distribution," Applied Financial Economics Letters, Taylor and Francis Journals, vol. 4(6), pages 425-431.
    17. S. Michael Giliberto, 1990. "Equity Real Estate Investment Trusts and Real Estate Returns," Journal of Real Estate Research, American Real Estate Society, vol. 5(2), pages 259-264.
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