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Reits' Growth Options and Asset Pricing Dynamics across Time

Author

Listed:
  • Cheng Wee Tan

    () (The University of Adelaide, Business School)

  • Dogan Tirtiroglu

    () (The University of Adelaide, Business School)

  • Ercan Tirtiroglu

    () (The University of Adelaide, Business School)

Abstract

Our paper makes two empirical contributions on REITs’ asset pricing over three sequential and mutually exclusive time periods. The first yields the beta estimates of (i) assets, (ii) growth options and (iii) assets-in-place, embedded in the valuations of REITs. We develop a new approach to estimate the latter two betas and, to our knowledge, provide the first-ever REIT evidence on them. The second investigates the evolving roles, from a capital markets viewpoint, of the four pricing factors of the Carhart model on REITs’ portfolio returns. In each investigation, we clean out, when needed, the unprecedented and overwhelming effects of GFC and the Eurozone bailout crisis. Our main results show that (i) the betas of growth options are larger than those of assets-in-place, raising a question mark about the ‘income stock’ description of REITs, (ii) the estimates of the equity beta for REITs are always positive and very highly significant, not consistent with the reports of the ‘death of beta’ from the mainstream finance literature, (iii) the capital markets’ one-year momentum measure does not affect REITs’ portfolio returns, and (iv) REITs exhibit a lot of progress in integration into the capital markets.

Suggested Citation

  • Cheng Wee Tan & Dogan Tirtiroglu & Ercan Tirtiroglu, 2013. "Reits' Growth Options and Asset Pricing Dynamics across Time," Koç University-TUSIAD Economic Research Forum Working Papers 1303, Koc University-TUSIAD Economic Research Forum.
  • Handle: RePEc:koc:wpaper:1303
    as

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    File URL: http://eaf.ku.edu.tr/sites/eaf.ku.edu.tr/files/erf_wp_1303.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Asset pricing; Growth option; Momentum; REITs; GFC.;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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