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REIT Mimicking Portfolio Analysis

Listed author(s):
  • Kevin C.H. Chiang

    ()

    (College of Business Administration, Northern Arizona University, Flagstaff, AZ 86011, USA)

  • Kirill Kozhevnikov

    (Lundquist College of Business, University of Oregon, Eugene, OR 97403, USA)

  • Ming-Long Lee

    (Department of Finance, National Yulin University of Science and Technology, Touliu, Yulin, Taiwan)

  • Craig H. Wisen

    (School of Management, University of Alaska Fairbanks, Fairbanks, AK 99775, USA)

Registered author(s):

    It is well known that expected returns vary by industry (Lyon et al., 1999), and that REIT-based mimicking portfolios may capture the information in real estate investment trust (REIT) prices (Downs, 2000). This study performs REIT-based mimicking portfolio analysis. The results indicate that when the Capital Asset Pricing Model and the Fama-French (1993) three-factor model are used to evaluate the performance of a REIT portfolio, the probability for making Type I error exceeds its significance level. Performance tests are better specified when mimicking portfolios are constructed with the firms from the REIT industry. In addition, the market beta of REIT portfolios appears to converge to the market beta of the NCREIF Index when REIT-based mimicking portfolios are included into the specification. The result is consistent with the notion that there is a strong linkage between REIT returns and the underlying real estate factor (Ziering et al., 1997).

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    File URL: http://www.umac.mo/fba/irer/papers/past/Vol9_pdf/Chiang,%20Kozhevnikov,%20Lee,%20and%20Wisen(95-111).pdf
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    Article provided by Asian Real Estate Society in its journal International Real Estate Review.

    Volume (Year): 9 (2006)
    Issue (Month): 1 ()
    Pages: 95-111

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    Handle: RePEc:ire:issued:v:09:n:01:2006:p:95-111
    Contact details of provider: Postal:
    Asia Real Estate Society, 51 Monroe Street, Plaza E-6, Rockville, MD 20850, USA

    Web page: http://www.asres.org/

    Order Information: Postal: Asian Real Estate Society, 51 Monroe Street, Plaza E-6, Rockville, MD 20850, USA
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    References listed on IDEAS
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    1. Karolyi, G Andrew & Sanders, Anthony B, 1998. "The Variation of Economic Risk Premiums in Real Estate Returns," The Journal of Real Estate Finance and Economics, Springer, vol. 17(3), pages 245-262, November.
    2. David T. Brown, 2000. "Liquidity and Liquidation: Evidence from Real Estate Investment Trusts," Journal of Finance, American Finance Association, vol. 55(1), pages 469-485, 02.
    3. Su Han Chan & Wai Kin Leung & Ko Wang, 1998. "Institutional Investment in REITs: Evidence and Implications," Journal of Real Estate Research, American Real Estate Society, vol. 16(3), pages 357-374.
    4. Brent W. Ambrose & Esther Ancel & Mark D. Griffiths, 1992. "The Fractal Structure of Real Estate Investment Trust Returns: The Search for Evidence of Market Segmentation and Nonlinear Dependency," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 20(1), pages 25-54.
    5. Willard McIntosh & Youguo Liang & Daniel L. Tompkins, 1991. "An Examination of the Small-Firm Effect within the REIT Industry," Journal of Real Estate Research, American Real Estate Society, vol. 6(1), pages 9-18.
    6. Terry V. Grissom & David Hartzell & Crocker H. Liu, 1987. "An Approach to Industrial Real Estate Market Segmentation and Valuation Using the Arbitrage Pricing Paradigm," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 15(3), pages 199-219.
    7. James D. Peterson & Cheng-Ho Hsieh, 1997. "Do Common Risk Factors in the Returns on Stocks and Bonds Explain Returns on REITs?," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 25(2), pages 321-345.
    8. Carhart, Mark M, 1997. " On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    9. Liu, Crocker H & Mei, Jianping, 1992. "The Predictability of Returns on Equity REITs and Their Co-movement with Other Assets," The Journal of Real Estate Finance and Economics, Springer, vol. 5(4), pages 401-418, December.
    10. John D. Lyon & Brad M. Barber & Chih-Ling Tsai, 1999. "Improved Methods for Tests of Long-Run Abnormal Stock Returns," Journal of Finance, American Finance Association, vol. 54(1), pages 165-201, 02.
    11. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, 09.
    12. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    13. Kevin C.H. Chiang & Ming-Long Lee & Craig H. Wisen, 2005. "On the Time-Series Properties of Real Estate Investment Trust Betas," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 33(2), pages 381-396, 06.
    14. Mei, Jianping & Liu, Crocker H, 1994. "The Predictability of Real Estate Returns and Market Timing," The Journal of Real Estate Finance and Economics, Springer, vol. 8(2), pages 115-135, March.
    15. Kevin C.H. Chiang & Ming-Long Lee & Craig H. Wisen, 2004. "Another Look at the Asymmetric REIT-Beta Puzzle," Journal of Real Estate Research, American Real Estate Society, vol. 26(1), pages 26-42.
    16. David C. Ling & Andy Naranjo, 1999. "The Integration of Commercial Real Estate Markets and Stock Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 27(3), pages 483-515.
    17. Andy C. W. Chui & Sheridan Titman & K. C. John Wei, 2003. "The Cross Section of Expected REIT Returns," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 31(3), pages 451-479, 09.
    18. Sharpe, W F, 1981. "Decentralized Investment Management," Journal of Finance, American Finance Association, vol. 36(2), pages 217-234, May.
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