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Real Estate Risk and the Business Cycle: Evidence from Security Markets

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    Abstract

    This study reports on the ex-post performance of survivor REITs and RECs over a 14.5-year period covering several business cycles. The results show that the systematic risk and risk-adjusted returns of REITs and RECs are quite different, especially during periods of low growth in real GNP. Relative to the overall stock market, survivor REITs, in particular, equity REITs, exhibited less volatility and higher returns than previous studies revealed. This can be explained by the higher returns, lower volatility, and lower systematic risk of REITs in periods of high growth in real GNP which have dominated the 1980s. The results expand our understanding of the true volatility of real estate, highlighting, at the same time, the need for further research to better understand the relationship between the performance of equity REIT securities and the underlying real estate assets in their portfolios.

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    File URL: http://aux.zicklin.baruch.cuny.edu/jrer/papers/pdf/past/vol05n02/v05p203.pdf
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    Bibliographic Info

    Article provided by American Real Estate Society in its journal Journal of Real Estate Research.

    Volume (Year): 5 (1990)
    Issue (Month): 2 ()
    Pages: 203-220

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    Handle: RePEc:jre:issued:v:5:n:2:1990:p:203-220

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    Postal: American Real Estate Society Clemson University School of Business & Behavioral Science Department of Finance 401 Sirrine Hall Clemson, SC 29634-1323
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    Web page: http://www.aresnet.org/

    Order Information:
    Postal: Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323
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    Web: http://aux.zicklin.baruch.cuny.edu/jrer/about/get.htm

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    1. Joe Peek & Eric S. Rosengren, 1988. "The stock market and economic activity," New England Economic Review, Federal Reserve Bank of Boston, issue May, pages 39-50.
    2. James L. Kuhle & Carl H. Walther & Charles H. Wurtzebach, 1986. "The Financial Performance of Real Estate Investment Trusts," Journal of Real Estate Research, American Real Estate Society, vol. 1(1), pages 67-75.
    3. Michael E. Solt & Norman G. Miller, 1985. "Managerial Incentives: Implications for the Financial Performance of Real Estate Investment Trusts," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 13(4), pages 404-423.
    4. Sheridan Titman & Arthur Warga, 1986. "Risk and the Performance of Real Estate Investment Trusts: A Multiple Index Approach," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 14(3), pages 414-431.
    5. Leo Grebler & Leland S. Burns, 1982. "Construction Cycles in the United States Since World War II," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 10(2), pages 123-151.
    6. Mike Miles & Tom Mc Cue, 1982. "Historic Returns and Institutional Real Estate Portfolios," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 10(2), pages 184-199.
    7. Patel, Raman C. & Olsen, Robert A., 1984. "Financial determinants of systematic risk in real estate investment trusts," Journal of Business Research, Elsevier, vol. 12(4), pages 481-491, December.
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    Cited by:
    1. Armonat, Stefan & Pfnür, Andreas, 2002. "Basel II and the German credit crunch?," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 35585, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    2. Roger M. Shelor & Dwight C. Anderson, 1998. "The Financial Performance of REITs Following Initial Public Offerings," Journal of Real Estate Research, American Real Estate Society, vol. 16(3), pages 375-388.
    3. Joseph T.L. Ooi & Kim-Hiang Liow, 2004. "Risk-Adjusted Performance of Real Estate Stocks: Evidence From Developing Markets," Journal of Real Estate Research, American Real Estate Society, vol. 26(4), pages 371-396.
    4. Pierpaolo Pattitoni & Barbara Petracci & Massimo Spisni, 2011. "Fee Structure, Financing, and Investment Decisions: The Case of REITs," Working Paper Series 30_11, The Rimini Centre for Economic Analysis.
    5. Peter Oppenheimer & Terry V. Grissom, 1998. "Frequency Space Correlation Between REITs and Capital Market Indices," Journal of Real Estate Research, American Real Estate Society, vol. 16(3), pages 291-310.

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