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Response speeds of direct and securitized real estate to shocks in the fundamentals

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  • Elias Oikarinen
  • Martin Hoesli
  • Camilo Serrano

Abstract

This paper contributes to the literature by identifying the response patterns of direct and indirect real estate returns to shocks in the market fundamentals. The response speeds are estimated with vector autoregressive models using TBI and NAREIT returns for the period 1994-2009 in the United States. To avoid the potential influence of different property mixes and of leverage on the dynamics, we use sector level data and deleveraged NAREIT returns. The findings indicate that REIT returns lead direct real estate returns even when catering for the property type and for leverage. Our estimations suggest that this lead-lag relationship is due to the sluggish reaction of direct real estate prices to unexpected changes both in the fundamentals and in REIT prices. The findings further suggest that the perceived lead-lag relations are not only due to the slow adjustment of sellers' reservation prices, but also due to the sluggish reaction of demand in the direct real estate market.

Suggested Citation

  • Elias Oikarinen & Martin Hoesli & Camilo Serrano, 2010. "Response speeds of direct and securitized real estate to shocks in the fundamentals," Discussion Papers 60, Aboa Centre for Economics.
    • Handle: RePEc:tkk:dpaper:dp60
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    References listed on IDEAS

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    1. Joseph L. Pagliari & Kevin A. Scherer & Richard T. Monopoli, 2005. "Public Versus Private Real Estate Equities: A More Refined, Long-Term Comparison," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 33(1), pages 147-187, March.
    2. Chen, Nai-Fu & Roll, Richard & Ross, Stephen A, 1986. "Economic Forces and the Stock Market," The Journal of Business, University of Chicago Press, vol. 59(3), pages 383-403, July.
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    Cited by:

    1. Hoesli, Martin & Oikarinen, Elias, 2012. "Are REITs real estate? Evidence from international sector level data," Journal of International Money and Finance, Elsevier, vol. 31(7), pages 1823-1850.
    2. Martin Hoesli & Elias Oikarinen, 2011. "Are Reits Real Estate? Evidence from Sector Level Data," ERES eres2011_221, European Real Estate Society (ERES).

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    More about this item

    Keywords

    Vector Autoregressive Models; Generalized Impulse Response Functions; Direct Real Estate; Securitized Real Estate; Dynamics;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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