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Do investors value REITs and Non-REITs differently?

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  • Wei, Peihwang
  • Yang, Xiaolou

Abstract

This study compares the valuation of REITs and non-REITs, using firm-level return and accounting data of 168 REITs and 3,215 industrial companies and the methodology of Vuolteenaho (2002) that separates variances driven by cash flow news and expected return news. The evidence shows that, relative to industrial firms, REITs are driven more by cash flow risk. However, the difference in cash flow risk is insignificant after controlling for leverage. Furthermore, in poor market conditions the valuation of REITs is closer to that of non-REITs, a result we interpret as evidence of a leverage effect. These results point to leverage as an important driver of cash flow risk. In addition, cash flow risk of small firms is found to be on average lower than that of larger ones.

Suggested Citation

  • Wei, Peihwang & Yang, Xiaolou, 2012. "Do investors value REITs and Non-REITs differently?," International Review of Economics & Finance, Elsevier, vol. 24(C), pages 295-302.
  • Handle: RePEc:eee:reveco:v:24:y:2012:i:c:p:295-302
    DOI: 10.1016/j.iref.2012.04.005
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    References listed on IDEAS

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    Cited by:

    1. Laih, Yih-Wenn & Lai, Hung-Neng & Li, Chun-An, 2015. "Analyst valuation and corporate value discovery," International Review of Economics & Finance, Elsevier, vol. 35(C), pages 235-248.
    2. Yung, Kenneth & Nafar, Nadia, 2017. "Investor attention and the expected returns of reits," International Review of Economics & Finance, Elsevier, vol. 48(C), pages 423-439.

    More about this item

    Keywords

    REIT; Variance decomposition; Real estate valuation;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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