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Systematic Risk and Diversification in the Equity REIT Market

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  • Joseph Gyourko
  • Edward Nelling

Abstract

This paper employs stock market-based data to examine the systematic risk and diversification properties of publicly traded equity real estate investment trusts (REITs). A unique data sample is created by combining firm return data with information on their property type holdings and the location of their investments. The systematic risk of equity REITs appears to vary by the type of property in which they invest, with beta being significantly higher for retail-oriented REITs than for REITs owning industrial and warehouse properties. In addition, the stock market data provides no evidence that REIT diversification across property types or broad geographic regions actually results in meaningful diversification as reflected in a standard market-based measure-the "R"-super-2 from a simple market model regression. Copyright American Real Estate and Urban Economics Association.

Suggested Citation

  • Joseph Gyourko & Edward Nelling, 1996. "Systematic Risk and Diversification in the Equity REIT Market," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 24(4), pages 493-515.
  • Handle: RePEc:bla:reesec:v:24:y:1996:i:4:p:493-515
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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/1540-6229.00701
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    Cited by:

    1. Devaney, Michael, 2012. "Financial crisis, REIT short-sell restrictions and event induced volatility," The Quarterly Review of Economics and Finance, Elsevier, vol. 52(2), pages 219-226.
    2. Chien-Yun Chang & Jian-Hsin Chou & Hung-Gay Fung, 2012. "Time dependent behavior of the Asian and the US REITs around the subprime crisis," Journal of Property Investment & Finance, Emerald Group Publishing, vol. 30(3), pages 282-303, April.
    3. James Chong & Alexandra Krystalogianni & Simon Stevenson, "undated". "Dynamic Correlations across REIT Sub-Sectors," Real Estate & Planning Working Papers rep-wp2011-07, Henley Business School, Reading University.
    4. Omokolade Akinsomi & Seow Eng Ong & Muhammad Faishal Ibrahim, 2013. "Corporate Real Estate Holdings and Firm Returns of Shariah Compliant Firms," ERES eres2013_99, European Real Estate Society (ERES).
    5. Hsuan-Chi Chen & Robert Fok & Chiuling Lu, 2011. "An Analysis of Lockups in REIT IPOs," The Journal of Real Estate Finance and Economics, Springer, vol. 43(3), pages 359-384, October.
    6. Michael S. Young, 2000. "REIT Property-Type Sector Integration," Journal of Real Estate Research, American Real Estate Society, vol. 19(1), pages 3-21.
    7. John Cotter & Richard Roll, 2010. "A Comparative Anatomy of REITs and Residential Real Estate Indexes: Returns, Risks and Distributional Characteristics," Working Papers 201008, Geary Institute, University College Dublin.
    8. Armonat, Stefan & Pfnür, Andreas, 2002. "Basel II and the German credit crunch?," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 35585, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    9. Randy Anderson & Justin Benefield & Matthew Hurst, 2015. "Property-type diversification and REIT performance: an analysis of operating performance and abnormal returns," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 39(1), pages 48-74, January.
    10. Viktoriya Lantushenko & Edward Nelling, 2017. "Institutional Property-Type Herding in Real Estate Investment Trusts," The Journal of Real Estate Finance and Economics, Springer, vol. 54(4), pages 459-481, May.
    11. Benefield, Justin D. & Anderson, Randy I. & Zumpano, Leonard V., 2009. "Performance differences in property-type diversified versus specialized real estate investment trusts (REITs)," Review of Financial Economics, Elsevier, vol. 18(2), pages 70-79, April.
    12. Paul Gallimore & J. Andrew Hansz & Wikrom Prombutr & Ying Zhang, 2014. "Long-term Cointegrative and Short-term Causal Relations among U.S. Real Estate Sectors," International Real Estate Review, Asian Real Estate Society, vol. 17(3), pages 359-394.
    13. Roger M. Shelor & Dwight C. Anderson, 1998. "The Financial Performance of REITs Following Initial Public Offerings," Journal of Real Estate Research, American Real Estate Society, vol. 16(3), pages 375-388.
    14. repec:eee:quaeco:v:66:y:2017:i:c:p:70-99 is not listed on IDEAS
    15. Hartzell, Jay C. & Sun, Libo & Titman, Sheridan, 2014. "Institutional investors as monitors of corporate diversification decisions: Evidence from real estate investment trusts," Journal of Corporate Finance, Elsevier, vol. 25(C), pages 61-72.
    16. Erik Devos & Thomas McInish & Michael McKenzie & James Upson, 2014. "Naked Short Selling and the Market Impact of Fails-to-Deliver: Evidence from the Trading of Real Estate Investment Trusts," The Journal of Real Estate Finance and Economics, Springer, vol. 49(4), pages 454-476, November.
    17. James Chong & Alexandra Krystalogianni & Simon Stevenson, 2012. "Dynamic correlations between REIT sub-sectors and the implications for diversification," Applied Financial Economics, Taylor & Francis Journals, vol. 22(13), pages 1089-1109, July.
    18. Darcey D. Terris & F.C. Neil Myer, 1995. "The Predictability of REIT Returns and Market Segmentatio," Journal of Real Estate Research, American Real Estate Society, vol. 10(4), pages 483-494.

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