IDEAS home Printed from https://ideas.repec.org/a/ove/journl/aid9522.html
   My bibliography  Save this article

REIT modified duration and convexity

Author

Listed:
  • Pierpaolo Pattitoni
  • Barbara Petracci
  • Massimo Spisni

Abstract

Listed Real Estate Investment Trusts (REITs) share several characteristics with bonds. Modified duration and convexity – interest rate risk measures generally applied in bond analyses – could therefore be natural candidates to measure the REIT price sensitivity to interest rate changes. In this paper, we propose a theoretical model that relates the REIT price changes to interest rate fluctuations. Then, we test this model empirically using data from all the 22 Italian listed REITs in the time period 2007–09. Our results show that the relationship between REIT price changes and interest rate variations is, indeed, nonlinear and significant even after market price fluctuations are taken into account. Estimates of modified duration and convexity based on historical data are provided for our sample of REITs.

Suggested Citation

  • Pierpaolo Pattitoni & Barbara Petracci & Massimo Spisni, 2012. "REIT modified duration and convexity," Economics and Business Letters, Oviedo University Press, vol. 1(3), pages 1-7.
  • Handle: RePEc:ove:journl:aid:9522
    as

    Download full text from publisher

    File URL: http://www.unioviedo.es/reunido/index.php/EBL/article/view/9522
    Download Restriction: no

    References listed on IDEAS

    as
    1. Pierpaolo Pattitoni & Barbara Petracci & Massimo Spisni, 2013. "NAV discount in REITs: the role of expert assessors," Applied Economics Letters, Taylor & Francis Journals, vol. 20(2), pages 194-198, February.
    2. Jinliang Li & Liang Lei, 2011. "Determinants and information of REIT pricing," Applied Economics Letters, Taylor & Francis Journals, vol. 18(15), pages 1501-1505.
    3. Ling T. He, & James. R. Webb & Neil Myer, 2003. "Interest Rate Sensitivities of REIT Returns," International Real Estate Review, Asian Real Estate Society, vol. 6(1), pages 1-21.
    4. Glenn R. Mueller & Keith R. Pauley, 1995. "The Effect of Interest-Rate Movements on Real Estate Investment Trusts," Journal of Real Estate Research, American Real Estate Society, vol. 10(3), pages 319-326.
    5. Yuming Li & Ko Wang, 1995. "The Predictability of REIT Returns and Market Segmentatio," Journal of Real Estate Research, American Real Estate Society, vol. 10(4), pages 471-482.
    6. Thomas E. McCue & John L. Kling, 1994. "Real Estate Returns and the Macroeconomy: Some Empirical Evidence from Real Estate Investment Trust," Journal of Real Estate Research, American Real Estate Society, vol. 9(3), pages 277-288.
    7. Allen, Marcus T & Madura, Jeff & Springer, Thomas M, 2000. "REIT Characteristics and the Sensitivity of REIT Returns," The Journal of Real Estate Finance and Economics, Springer, vol. 21(2), pages 141-152, September.
    8. K.C. Chen & Daniel D. Tzang, 1988. "Interest-Rate Sensitivity of Real Estate Investment Trusts," Journal of Real Estate Research, American Real Estate Society, vol. 3(3), pages 13-22.
    9. Carlos Ortiz & Charles Stone & Anne Zissu, 2008. "Fixed income securities with a zero Macaulay duration: senior life settlements," Applied Financial Economics Letters, Taylor and Francis Journals, vol. 4(3), pages 205-207.
    10. Samih Antoine Azar, 2007. "A duration-based equity premium," Applied Financial Economics Letters, Taylor and Francis Journals, vol. 3(6), pages 409-414.
    11. Donald Smith, 2010. "Bond portfolio duration, cash flow dispersion and convexity," Applied Economics Letters, Taylor & Francis Journals, vol. 17(17), pages 1669-1672.
    12. Swanson, Zane & Theis, John & Casey, K Michael, 2002. "REIT Risk Premium Sensitivity and Interest Rates," The Journal of Real Estate Finance and Economics, Springer, vol. 24(3), pages 319-330, May.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ove:journl:aid:9522. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Francisco J. Delgado) or (Christopher F. Baum). General contact details of provider: http://edirc.repec.org/data/deovies.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.