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The Effect of Benchmark Choice on Risk-Adjusted Performance Measures for Commingled Real Estate Funds

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    Abstract

    This study examines the portfolio performance for forty-seven commingled real estate funds using several different sets of real estate benchmarks and the multifactor Jensen alpha measure. The results indicate that the choice of a specific aggregate real estate market index makes very little difference in the performance results. Adding an inflation index, or disaggregating the market index into regional subindices, produces alphas that are less correlated with the single-index model alphas and produces a large reduction in the amount of abnormal performance detected. In addition, disaggregating the single-market index into property types produces alphas that are the least correlated with those from the other models and also produces a reduction in the amount of abnormal performance detected, similar to the results for the inflation and regional models.

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    File URL: http://aux.zicklin.baruch.cuny.edu/jrer/papers/pdf/past/vol08n02/v08p189.pdf
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    Article provided by American Real Estate Society in its journal Journal of Real Estate Research.

    Volume (Year): 8 (1993)
    Issue (Month): 2 ()
    Pages: 189-204

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    Handle: RePEc:jre:issued:v:8:n:2:1993:p:189-204

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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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    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. 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.
    2. K. C. Chan & Patric H. Hendershott & Anthony B. Sanders, 1990. "Risk and Return on Real Estate: Evidence from Equity REITs," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 18(4), pages 431-452.
    3. John D. Martin & Douglas O. Cook, 1991. "A Comparison of the Recent Performance of Publicly Traded Real Property Portfolios and Common Stock," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 19(2), pages 184-212.
    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. Crocker H. Liu & David J. Hartzell & Terry V. Grissom & Wylie Greig, 1990. "The Composition of the Market Portfolio and Real Estate Investment Performance," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 18(1), pages 49-75.
    6. Joseph Gyourko & Donald B. Keim, . "What Does the Stock Market Tell Us About Real Estate Returns? (Revised: 11-92)," Rodney L. White Center for Financial Research Working Papers 18-91, Wharton School Rodney L. White Center for Financial Research.
    7. Geltner, David Michael, 1991. "Smoothing in Appraisal-Based Returns," The Journal of Real Estate Finance and Economics, Springer, vol. 4(3), pages 327-45, September.
    8. Paul H. Goebel & Kee S. Kim, 1989. "Performance Evaluation of Finite-Life Real Estate Investment Trusts," Journal of Real Estate Research, American Real Estate Society, vol. 4(2), pages 57-70.
    9. Ross, Stephen A & Zisler, Randall C, 1991. "Risk and Return in Real Estate," The Journal of Real Estate Finance and Economics, Springer, vol. 4(2), pages 175-90, June.
    10. W. B. Brueggeman & A. H. Chen & T. G. Thihodeau, 1984. "Real Estate Investment Funds: Performance and Portfolio Considerations," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 12(3), pages 333-354.
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