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The Riskiness of REITs Surrounding the October 1997 Stock Market Decline

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Author Info

  • John L. Glascock

    ()

  • David Michayluk
  • Karyn Neuhauser

Abstract

Real estate investment trusts (REITs) are viewed as low risk/low return stocks that exhibit defensive stock characteristics. The stock market decline of October 1997 provides an excellent opportunity to examine the riskiness of REITs during high levels of market uncertainty. We find that the decline in REIT stock values was about one-half as large as the decline of non-REIT stocks. Additionally, market uncertainty on the event day was shown with an increased bid-ask spread for all stocks. On the following day when the market decline was partially reversed, the bid-ask spreads continued to increase for non-REIT stocks, but declined for REIT stocks. This suggests that REITs, like defensive stocks in general, are less prone to significant declines during market-wide disturbances. Also, we order stocks based on the standard deviation measures of risk and show that this risk measure explains the cross-section of returns for non-REITs but is not valid for REITs.

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Bibliographic Info

Article provided by Springer in its journal The Journal of Real Estate Finance and Economics.

Volume (Year): 28 (2004)
Issue (Month): 4 (05)
Pages: 339-354

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Handle: RePEc:kap:jrefec:v:28:y:2004:i:4:p:339-354

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Web page: http://www.springerlink.com/link.asp?id=102945

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Cited by:
  1. Ranajit Kumar Bairagi & William Dimovski, 2010. "The underpricing of US REIT IPOs: 1996--2010," Journal of Property Research, Taylor & Francis Journals, vol. 28(3), pages 233-248, December.
  2. David Michayluk & Patrick J. Wilson & Ralf Zurbruegg, 2006. "Asymmetric Volatility, Correlation and Returns Dynamics Between the U.S. and U.K. Securitized Real Estate Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 34(1), pages 109-131, 03.
  3. I-Chun Tsai & Cheng-Feng Lee & Ming-Chu Chiang, 2012. "The Asymmetric Wealth Effect in the US Housing and Stock Markets: Evidence from the Threshold Cointegration Model," The Journal of Real Estate Finance and Economics, Springer, vol. 45(4), pages 1005-1020, November.
  4. Dirk Brounen & Piet Eichholtz & David Ling, 2009. "The Liquidity of Property Shares: An International Comparison," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 37(3), pages 413-445.
  5. Kenji Kutsuna & William Dimovski & Robert Brooks, 2008. "The Pricing and Underwriting Costs of Japanese REIT IPOs," Journal of Property Research, Taylor & Francis Journals, vol. 25(3), pages 221-239, November.
  6. Ming-Chi Chen & Chi-Lu Peng & So-De Shyu & Jhih-Hong Zeng, 2012. "Market States and the Effect on Equity REIT Returns due to Changes in Monetary Policy Stance," The Journal of Real Estate Finance and Economics, Springer, vol. 45(2), pages 364-382, August.

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