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REIT modified duration and convexity

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  • Pierpaolo Pattitoni
  • Barbara Petracci
  • Massimo Spisni

Abstract

Listed Real Estate Investment Trusts (REITs) share several characteristics with bonds. Modified duration and convexity – interest rate risk measures generally applied in bond analyses – could therefore be natural candidates to measure the REIT price sensitivity to interest rate changes. In this paper, we propose a theoretical model that relates the REIT price changes to interest rate fluctuations. Then, we test this model empirically using data from all the 22 Italian listed REITs in the time period 2007–09. Our results show that the relationship between REIT price changes and interest rate variations is, indeed, nonlinear and significant even after market price fluctuations are taken into account. Estimates of modified duration and convexity based on historical data are provided for our sample of REITs.

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File URL: http://www.unioviedo.es/reunido/index.php/EBL/article/view/9522
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Article provided by Oviedo University Press in its journal Economics and Business Letters.

Volume (Year): 1 (2012)
Issue (Month): 3 ()
Pages:

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Handle: RePEc:ove:journl:aid:9522

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