The monthly returns on equity and mortgage real estate investment trusts (REITs) are analyzed over the period July 1976 to December 1992. The results indicate that risk premiums on equity REITs are significantly related to risk premiums on a market portfolio of stocks as well as to the returns on mimicking portfolios for size and book-to-market equity factors in common stock returns. Mortgage REIT risk premiums are significantly related to the three stock market factors and two bond market factors in returns. Also, mortgage REIT shares underperform by an average of 6.8% per year. Copyright American Real Estate and Urban Economics Association.

Two empirical models are used to implement the arbitrage pricing theory: the factor loading model (FLM) and the macrovariable model (MVM). This study compares the ability of these two models to explain real estate returns using equity REIT returns as a proxy. Two tests are performed: a comparison of crosssectional adjusted-R2's and the Davidson and Mackinnon test. The results show that while the two models perform equally well during the period 1974-1979, the MVM outperforms the FLM over the periods 1980-1985 and 1986-1991. In addition, both models suggest superior financial performance for EREITs relative to other investments in the market during the period 1980-1985. Copyright American Real Estate and Urban Economics Association.

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PurposeThe purpose of this paper is to develop a conceptual framework to determine the optimal balance between fixed and variable compensation costs incurred by a firm.Design/methodology/approachIn 2004 Burke and Terry used an economic framework to demonstrate how variable pay can reduce operating leverage and hence increase a firm's value. Their theme is extended to develop a conceptual framework for ascertaining the optimal balance between fixed and variable pay components.FindingsAs demonstrated with an example, the choice between fixed and variable pay affects the firm's employee productivity, operating leverage, market risk, cost of capital, and cash flows. The ultimate choice of the variable and fix compensation “mix” should meet the goal of management – maximizing the firm value, and hence the shareholders' wealth.Practical implicationsEvidence suggests there is a growing use of variable pay schemes in firms to increase employee motivation and productivity.Originality/valueThe framework allows a firm's cash flows to vary due to the changes in the variable pay component.

For the sample period of 1985 and 1986, captive real estate investments trusts (REITs) have a larger bid-ask spread than noncaptive REITs, after controlling for trading volume, price volatility, insider holdings, institutional holdings and firm size. Based on the bid-ask spread literature, the results suggest that captive firms are subject to a greater degree of information asymmetry. This implies a higher cost of capital for captive firms. The evidence here and the trend toward self-administered REITs imply that information asymmetry and conflicts of interests within REITs are priced. Copyright American Real Estate and Urban Economics Association.