The relation between real estate investment trust (REIT) returns and stock market returns is of significant importance to investors, practitioners and academics. The temporal properties of this relationship have a critical impact on the usefulness of REIT risk estimates and portfolio allocations to this asset class. Recent studies have suggested a decline in the market betas of equity real estate investment trusts (EREITs). This study applies a rigorous statistical test of the hypothesis that the market betas of EREITs have remained unchanged during the 1972 through 2002 time period. There is weak evidence of a downward trend in EREIT betas using a single-factor model; however, the hypothesis is not rejected when using a three-factor model.The stability of a risky security's market beta is important to those who use the estimated coefficient for performance evaluation, event studies, valuation and asset allocation. A number of recent studies have observed an apparent decline in the market betas of equity real estate investment trusts (EREITs). If the decline is of statistical and economic significance, then the implication is that estimates of EREIT betas that rely upon historical returns are biased upward. Although several explanations have been proposed for the apparent decline in EREIT betas, no formal tests for a significant time trend have been conducted. This article rigorously tests the time-series properties of EREIT betas.
Related LiteratureMcIntosh, Liang and Tompkins (1991) were the first to detect a decline in EREIT betas during the 1974 through 1983 time period. Khoo, Hartzell and Hoesli (1993) expanded the McIntosh, Liang and Tompkins sample period from 1970 to 1989, and they provided additional evidence of a temporal decline in EREIT betas. Khoo, Hartzell and Hoesli applied a two-sample test for a regime shift under the assumption of time independence. As will be shown below, however,
An innovative method to estimate the duration of investor sentiment is applied to closed-end country fund returns and it finds that U.S. investor sentiment has a short life. The effects of sentiment on closed-end country fund returns are largely consistent with existing literature however, it is only apparent in daily time-series regressions. Sentiment rapidly fades at a weekly frequency and virtually disappears using monthly return observations. These results suggest that the kind of investor sentiment for country fund prices does not have a persistent component.
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