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Common Risk Factors of REITs Returns Revisited

Author

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  • Alain Coen
  • Philippe Guardiola

Abstract

In this article we analyze the dynamic returns of REITs and test multi-factor asset pricing models based on real estate specific risk exposure, including market risk, size, value momentum, cash flow volatility, leverage, investment growth, term risk, default risk, liquidity risk and common macroeconomic factors. We also focus on the role of idiosyncratic risk and higher moments and scrutinize their relative importance to explain the decomposition of listed property companies returns on U.S. financial markets. We suggest the use of a new parsimonious common factors model to improve REITs valuation and to define their cost of capital. Revisiting the previous literature devoted to the role of leverage in the real estate industry, our empirical (un-conditional and conditional) results shed new light on leverage risk and idiosyncratic risk for U.S. REITs returns over a long period (2000-2021) marked by important crises.

Suggested Citation

  • Alain Coen & Philippe Guardiola, 2023. "Common Risk Factors of REITs Returns Revisited," ERES eres2023_249, European Real Estate Society (ERES).
    • Handle: RePEc:arz:wpaper:eres2023_249
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    File URL: https://eres.architexturez.net/doc/oai-eres-id-eres2023-249
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    More about this item

    Keywords

    Asset Pricing; Leverage; Multifactor Models; REITs;
    All these keywords.

    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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