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Efficiency, Scale Economies, and the Risk/Return Performance of Real Estate Investment Trusts

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  • Michael Devaney

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  • William Weber

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Abstract

Estimates from a directional output distance function are used to construct a risk/return frontier that defines the best-practice management technology for Real Estate Investment Trusts (REITs). We model REIT performance as a production process in which each REIT produces a desirable output (return) and an undesirable output (risk) using inputs of managerial effort and financial capital. The results suggest that ignoring the effects of risk yields a management technology that is significantly different from one that incorporates risk. In addition, market valuation is inversely related to inefficiency and directly related to leverage. Copyright Springer Science + Business Media, Inc. 2005

Suggested Citation

  • Michael Devaney & William Weber, 2005. "Efficiency, Scale Economies, and the Risk/Return Performance of Real Estate Investment Trusts," The Journal of Real Estate Finance and Economics, Springer, vol. 31(3), pages 301-317, November.
  • Handle: RePEc:kap:jrefec:v:31:y:2005:i:3:p:301-317
    DOI: 10.1007/s11146-005-2791-5
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    References listed on IDEAS

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    Citations

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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. Eli Beracha & Zifeng Feng & William Hardin, 2017. "The Operational Efficiency of REITs," ERES eres2017_50, European Real Estate Society (ERES).
    3. repec:eee:jomega:v:75:y:2018:i:c:p:57-76 is not listed on IDEAS
    4. Tarnaud, Albane Christine & Leleu, Hervé, 2018. "Portfolio analysis with DEA: Prior to choosing a model," Omega, Elsevier, vol. 75(C), pages 57-76.

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