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Property-type diversification and REIT performance: an analysis of operating performance and abnormal returns

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  • Randy Anderson
  • Justin Benefield
  • Matthew Hurst

Abstract

This paper examines the effect of property-type diversification in equity real estate investment trusts (REITs) from 1995 to 2006. A strong positive relationship is documented between property-type diversification and return on assets, return on equity, and Tobin’s Q. The diversification benefit comes from both the ability to select better performing property types in “hot” markets and the limited exposure to poorly performing property types in “cold” markets. Diversified REITs produce higher cash flows relative to equity as a result of a broader opportunity set; moreover, return on assets increases with the degree of diversification, which suggests significant shielding to property-type specific risk. Additionally, results indicate that diversified REITs operate and trade above their contemporaneous predicted values, which are calculated using imputed multipliers from specialized REITs. The evidence shows that the market is operating efficiently and has incorporated this information; diversified REITs Q ratios are significantly greater than specialized REITs. Copyright Springer Science+Business Media, LLC 2015

Suggested Citation

  • Randy Anderson & Justin Benefield & Matthew Hurst, 2015. "Property-type diversification and REIT performance: an analysis of operating performance and abnormal returns," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 39(1), pages 48-74, January.
  • Handle: RePEc:spr:jecfin:v:39:y:2015:i:1:p:48-74
    DOI: 10.1007/s12197-012-9232-0
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    References listed on IDEAS

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    Cited by:

    1. Steffen Westermann & Scott J. Niblock & Michael A. Kortt, 2018. "A Review of Corporate Social Responsibility and Real Estate Investment Trust Studies: An Australian Perspective," Economic Papers, The Economic Society of Australia, vol. 37(1), pages 92-110, March.
    2. Fuerst, Franz & Mansley, Nick & Wang, Zilong, 2021. "Do specialist funds outperform? Evidence from European non-listed real estate funds," Research in International Business and Finance, Elsevier, vol. 58(C).
    3. Phillip Fuller & Ehab Yamani & Geungu Yu, 2019. "The impact of the new real estate sector on REITs: an event study," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 43(1), pages 143-161, January.

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    More about this item

    Keywords

    REITs; Property-type Diversification; Abnormal Returns; L25; G11;
    All these keywords.

    JEL classification:

    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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