Style Analysis in Real Estate Markets: Beyond the Sectors and Regions Dichotomy
AbstractWhile style analysis has been studied extensively in equity markets, applications of this valuable tool for measuring and benchmarking performance and risk in a real estate context are still relatively new. Most previous real estate studies on this topic have identified three investment categories (rather than styles): sectors, administrative regions and economic regions. However, the low explanatory power reveals the need to extend this analysis to other investment styles. We identify four main real estate investment styles and apply a multivariate model to randomly generated portfolios to test the significance of each style in explaining portfolio returns. Results show that significant alpha performance is significantly reduced when we account for the new investment styles, with small vs. big properties being the dominant one. Secondly, we find that the probability of obtaining alpha performance is dependent upon the actual exposure of funds to style factors. Finally we obtain that both alpha and systematic risk levels are linked to the actual characteristics of portfolios. Our overall results suggest that it would be beneficial for real estate fund managers to use these style factors to set benchmarks and to analyze portfolio returns.
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Bibliographic InfoPaper provided by Henley Business School, Reading University in its series Real Estate & Planning Working Papers with number rep-wp2009-01.
Length: 27 pages
Date of creation: 2009
Date of revision:
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investment styles; commercial real estate; portfolio analysis; performance measurement;
Find related papers by JEL classification:
- C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General
- G1 - Financial Economics - - General Financial Markets
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- R33 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Nonagricultural and Nonresidential Real Estate Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-08-22 (All new papers)
- NEP-RMG-2009-08-22 (Risk Management)
- NEP-URE-2009-08-22 (Urban & Real Estate Economics)
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