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Real Estate Risk and the Business Cycle: Evidence from Security Markets

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Abstract

This study reports on the ex-post performance of survivor REITs and RECs over a 14.5-year period covering several business cycles. The results show that the systematic risk and risk-adjusted returns of REITs and RECs are quite different, especially during periods of low growth in real GNP. Relative to the overall stock market, survivor REITs, in particular, equity REITs, exhibited less volatility and higher returns than previous studies revealed. This can be explained by the higher returns, lower volatility, and lower systematic risk of REITs in periods of high growth in real GNP which have dominated the 1980s. The results expand our understanding of the true volatility of real estate, highlighting, at the same time, the need for further research to better understand the relationship between the performance of equity REIT securities and the underlying real estate assets in their portfolios.

Suggested Citation

  • Lynne B. Sagalyn, 1990. "Real Estate Risk and the Business Cycle: Evidence from Security Markets," Journal of Real Estate Research, American Real Estate Society, vol. 5(2), pages 203-220.
  • Handle: RePEc:jre:issued:v:5:n:2:1990:p:203-220
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    References listed on IDEAS

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    1. Joe Peek & Eric S. Rosengren, 1988. "The stock market and economic activity," New England Economic Review, Federal Reserve Bank of Boston, issue May, pages 39-50.
    2. James L. Kuhle & Carl H. Walther & Charles H. Wurtzebach, 1986. "The Financial Performance of Real Estate Investment Trusts," Journal of Real Estate Research, American Real Estate Society, vol. 1(1), pages 67-75.
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    7. Patel, Raman C. & Olsen, Robert A., 1984. "Financial determinants of systematic risk in real estate investment trusts," Journal of Business Research, Elsevier, vol. 12(4), pages 481-491, December.
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    Cited by:

    1. De Santis, Paola & Drago, Carlo, 2014. "Asimmetria del rischio sistematico dei titoli immobiliari americani: nuove evidenze econometriche
      [Systematic Risk Asymmetry of the American Real Estate Securities: Some New Econometric Evidence]
      ," MPRA Paper 59381, University Library of Munich, Germany.
    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. Thomas C. Chiang & Hooi Hooi Lean & Wing-Keung Wong, 2008. "Do REITs Outperform Stocks and Fixed-Income Assets? New Evidence from Mean-Variance and Stochastic Dominance Approaches," Journal of Risk and Financial Management, MDPI, Open Access Journal, vol. 1(1), pages 1-40, December.
    4. Ming-Chu Chiang & Tien Foo Sing & I-Chun Tsai, 2017. "Spillover Risks in REITs and other Asset Markets," The Journal of Real Estate Finance and Economics, Springer, vol. 54(4), pages 579-604, May.
    5. Joseph T.L. Ooi & Kim-Hiang Liow, 2004. "Risk-Adjusted Performance of Real Estate Stocks: Evidence From Developing Markets," Journal of Real Estate Research, American Real Estate Society, vol. 26(4), pages 371-396.
    6. Pierpaolo Pattitoni & Barbara Petracci & Massimo Spisni, 2011. "Fee Structure, Financing, and Investment Decisions: The Case of REITs," Working Paper series 30_11, Rimini Centre for Economic Analysis.
    7. Zhou, Jian, 2013. "Conditional market beta for REITs: A comparison of modeling techniques," Economic Modelling, Elsevier, vol. 30(C), pages 196-204.
    8. Peter Oppenheimer & Terry V. Grissom, 1998. "Frequency Space Correlation Between REITs and Capital Market Indices," Journal of Real Estate Research, American Real Estate Society, vol. 16(3), pages 291-310.
    9. William Mingyan Cheung & James Chicheong Lei & Desmond Tsang, 2016. "Does Property Transaction Matter in the Price Discovery of Real Estate Markets?," International Real Estate Review, Asian Real Estate Society, vol. 19(1), pages 27-49.
    10. 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).
    11. Tien Sing & I-Chun Tsai & Ming-Chi Chen, 2016. "Time-Varying Betas of US REITs from 1972 to 2013," The Journal of Real Estate Finance and Economics, Springer, vol. 52(1), pages 50-72, January.
    12. Tien Foo Sing & I-Chun Tsai & Ming-Chi Chen, 2016. "Time-Varying Betas of US REITs from 1972 to 2013," The Journal of Real Estate Finance and Economics, Springer, vol. 52(1), pages 50-72, January.
    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. Kim, k. & Suh, s. & Feridun, M., 2006. "Real State Business Cycle and Real Estate Policies: The Case of Korea," Regional and Sectoral Economic Studies, Euro-American Association of Economic Development, vol. 6(1).
    15. John Glascock & Ran Lu-Andrews, 2014. "An Examination of Macroeconomic Effects on the Liquidity of REITs," The Journal of Real Estate Finance and Economics, Springer, vol. 49(1), pages 23-46, July.

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    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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