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Linkages Between Direct and Securitized Real Estate

Author

Listed:
  • Elias OIKARINEN

    (Turku School of Economics)

  • Martin HOESLI

    (University of Geneva (HEC and SFI), University of Aberdeen (Business School) and Bordeaux Ecole de Management)

  • Camilo SERRANO

    (University of Geneva (HEC))

Abstract

Using data for the 1978-2008 period, this study presents evidence for cointegration between securitized (NAREIT) and direct (NCREIF) total return indices. Cointegration between the indices indicates that REITs and direct real estate are substitutable in the portfolio of a long-horizon buy-and-hold investor. Since the real estate indices are not found to be cointegrated with the stock market, REITs and direct real estate are likely to have similar long-term diversification benefits in a stock portfolio. In line with prior expectations, only direct real estate is found to currently adjust towards the cointegrating relation, with NAREIT returns leading NCREIF returns. However, giving support to the often stated argument regarding weaker informational efficiency of the REIT market prior to the “new REIT era”, the results show evidence for the predictability of NAREIT returns during the 1980s. It is also found that at the beginning of the “new REIT era” a large and long-lasting deviation from the long-run relation between NAREIT and NCREIF emerged. However, there is no evidence of a permanent structural break in the long-run relation since the deviation appears to have been only temporary.

Suggested Citation

  • Elias OIKARINEN & Martin HOESLI & Camilo SERRANO, "undated". "Linkages Between Direct and Securitized Real Estate," Swiss Finance Institute Research Paper Series 09-26, Swiss Finance Institute.
  • Handle: RePEc:chf:rpseri:rp0926
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    References listed on IDEAS

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    1. Søren Johansen & Rocco Mosconi & Bent Nielsen, 2000. "Cointegration analysis in the presence of structural breaks in the deterministic trend," Econometrics Journal, Royal Economic Society, vol. 3(2), pages 216-249.
    2. Corgel, John B & deRoos, Jan A, 1999. "Recovery of Real Estate Returns for Portfolio Allocation," The Journal of Real Estate Finance and Economics, Springer, pages 279-296.
    3. David Geltner & Brian Kluger, 1998. "REIT-Based Pure-Play Portfolios: The Case of Property Types," Real Estate Economics, American Real Estate and Urban Economics Association, pages 581-612.
    4. Doornik, Jurgen A, 1998. " Approximations to the Asymptotic Distributions of Cointegration Tests," Journal of Economic Surveys, Wiley Blackwell, vol. 12(5), pages 573-593, December.
    5. Ross, Stephen A & Zisler, Randall C, 1991. "Risk and Return in Real Estate," The Journal of Real Estate Finance and Economics, Springer, pages 175-190.
    6. Jinliang Li & Robert M. Mooradian & Shiawee X. Yang, 2009. "The Information Content of the NCREIF Index," Journal of Real Estate Research, American Real Estate Society, pages 93-116.
    7. S. Michael Giliberto, 1990. "Equity Real Estate Investment Trusts and Real Estate Returns," Journal of Real Estate Research, American Real Estate Society, pages 259-264.
    8. Johansen, S ren, 2000. "A Bartlett Correction Factor For Tests On The Cointegrating Relations," Econometric Theory, Cambridge University Press, pages 740-778.
    9. Clayton, Jim & MacKinnon, Greg, 2003. "The Relative Importance of Stock, Bond and Real Estate Factors in Explaining REIT Returns," The Journal of Real Estate Finance and Economics, Springer, pages 39-60.
    10. Søren Johansen & Rocco Mosconi & Bent Nielsen, 2000. "Cointegration analysis in the presence of structural breaks in the deterministic trend," Econometrics Journal, Royal Economic Society, vol. 3(2), pages 216-249.
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    Citations

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    Cited by:

    1. Schindler, Felix, 2009. "Volatilitätseffekte am US-amerikanischen Häusermarkt," ZEW Discussion Papers 09-048, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    2. Roland Füss & Felix Schindler, 2011. "Diversifikationsvorteile verbriefter Immobilienanlagen in einem Mixed‐Asset‐Portfolio," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 12(2), pages 170-191, May.

    More about this item

    Keywords

    Cointegration; Vector Error-Correction Models; Direct Real Estate; Securitized Real Estate; REITs; Diversification;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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