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The Time-Varying Nature of Reits

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  • Zhu Bing

    (Department of Land Economy, University of Cambridge)

Abstract

This paper investigates changes in the nature of REITs by estimating the time-varying long-run relationship among securitized real estate, direct real estate, and stock performance. The informational environment of U.S. REITs has matured gradually since their introduction. As more information on this asset class has become available, the “true” nature of REITs has thus become more apparent. We find that the long-term elasticity of direct real estate total returns on REIT total returns has increased since 1980, and became significant at the beginning of the 1990s, while the elasticity of general equity total returns remained insignificant. During the 2000s, the underlying property market was able to predict nearly 30% of REIT variance in the long term. Consequently, ignoring changes in the “nature” of REITs may lead to an underestimation of the influence from the underlying property market, and misspecification of the optimal weights in the long-term inter-asset portfolio.

Suggested Citation

  • Zhu Bing, 2018. "The Time-Varying Nature of Reits," Real Estate Management and Valuation, Sciendo, vol. 26(1), pages 26-38, March.
    • Handle: RePEc:vrs:remava:v:26:y:2018:i:1:p:26-38:n:3
    DOI: 10.2478/remav-2018-0003
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Time-varying cointegration; Extended Vector Error Correction Model; Direct Real Estate; Securitized Real Estate; Diversification;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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