REIT, Real estate, Asset pricing, Real estate factor,
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,
Existing studies provide conflicting results regarding whether real estate investment trusts (REITs) effectively optimize and diversify institutional portfolios. Based on the style analysis of Sharpe, we extend Liang and McIntosh’s study with a more complete set of asset classes over a longer sample period. We provide additional evidence suggesting that practicing analysts should include REITs as an asset class to optimize their portfolios. Specifically, our results show that the price behavior of REITs is unique and cannot be satisfactorily duplicated by combining equity, fixed‐income securities, and unsecuritized real estate. The time series of the styles on REITs indicates that it is difficult to ex ante produce returns on REITs without diversifying into REITs.
The authors thank Kenneth French for providing the three-factor return series.
Purpose -US real estate investment trusts (REITs) typically distribute more dividends than required by tax regulations. This paper aims to focus on discretionary dividends, and examines the impact of information asymmetry on this excess component of dividends. Design/methodology/approach -This paper considers a set of US REITs with reported taxable income figures over the 2000-2007 period, and employs regression analysis to examine the influence of information asymmetry on the excess component of dividends. The explained variable is specified as excess dividends scaled by total assets. Excess dividends are dividends paid over the mandatory dividend payments calculated with taxable income, instead before-tax net income. Following the REIT studies of Hardin and Hill and Han, this study employs Tobin Q as the proxy for asymmetric information. Findings -Contrary to Hardin and Hill's conclusion, but consistent with dividend signaling theory as well as agency cost explanations, the results indicate that REITs with higher level of asymmetric information pay out significantly more excess dividends. Nevertheless, in contrast to Deshmukh's study on manufacturing firms, the REIT results are against the prediction of the pecking order theory. Originality/value -The paper is one of the few studies that explicitly examine the factors influencing REIT decision on discretionary dividends. Contrast to previous studies, this study is able to obtain taxable income and compute the discretionary dividends more accurately. Furthermore this paper is able to provide evidence against the pecking order theory, which is not investigated in the existing REIT dividend studies.
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