Why are REITS Currently So Expensive?

Nieuwerburgh, Stijn Van

doi:10.1111/1540-6229.12238

Cited by 33 publications

(18 citation statements)

References 55 publications

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“…Throughout the asset pricing analysis, we employ the Carhart (1997) four factor model extended by the bond market factor, as suggested by Van Nieuwerburgh (2019). We complement this benchmark model with lagged ΔUNC(1) factors as additional explanatory variables to estimate the uncertainty exposure.…”

Section: Resultsmentioning

confidence: 99%

“…Our sample period ranges from 1994 M 01 to 2017 M 12. The sample start is predetermined by the modern REIT era, beginning with the 1990s REIT boom (e.g., Clayton and MacKinnon, 2003; Van Nieuwerburgh, 2019), and matches the data availability of additional core sectors. Throughout this article, we use the Nareit All Equity REITs Index as proxy for the aggregate performance of the U.S. REIT market and compare the core sectors residential (RES), office (OFF), industrial (IND), and retail (RET) to study sector‐specific heterogeneity.…”

Section: Data and Summary Statisticsmentioning

confidence: 99%

“…Van Nieuwerburgh (2019) shows that about half of the variation in REIT returns can be explained by the Carhart (1997) four factor model, extended by bond market risk. This model specification serves as a benchmark for our asset pricing analysis.…”

Section: Data and Summary Statisticsmentioning

confidence: 99%

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Uncertainty premia in REIT returns

Lotz¹,

Ruf

2023

Real Estate Economics

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We provide a systematic study of how financial and real estate uncertainty affect the aggregate return performance of the U.S. REIT market from 1994 to 2017. A temporal causality analysis reveals a negative uncertainty impact on REIT returns. The asset pricing analysis confirms the predictive relation and suggests that REITs are statistically significantly exposed to changes in market‐wide uncertainty, for which investors require a return compensation. We also identify economic state variables to explain time‐varying uncertainty exposures as well as periodic hedging characteristics of REITs. Finally, we find evidence that the source of uncertainty matters for compensating expected REIT returns.

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Section: Resultsmentioning

confidence: 99%

Section: Data and Summary Statisticsmentioning

confidence: 99%

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Uncertainty premia in REIT returns

Lotz¹,

Ruf

2023

Real Estate Economics

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“…14 Mortgage REIT investment performance seemingly was only previously explored in one study (Chen and Peiser, 1999). By contrast, equity REITs have been the subject of numerous studies into their sector dynamics and determinants of investment performance (see Ling et al (2016), Letdin et al (2019), andVan Nieuwerburgh (2019), among many others). The evidence we present also broadly relates to the literature on the interest rate sensitivity of REITs (see Chen and Tzang (1988), Bae (1990), Mueller and Pauley (1995), Allen et al (2000), Swanson et al (2002), He et al (2003), andLiow et al (2003)).…”

Section: Resultsmentioning

confidence: 99%

Quantitative Easing and Agency MBS Investment and Financing Choices by Mortgage REITs

Frame¹,

Steiner²

2021

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An emerging literature documents a link between central bank quantitative easing (QE) and financial institution credit risk-taking. This paper tests the complementary hypothesis that QE may also affect financial risk-taking. We study Agency MREITs -levered shadow banks that invest in guaranteed U.S. Agency mortgage-backed securities (MBS) and that are principally funded with repo debt. We first show that Agency MREIT asset growth is inversely related to the Federal Reserve's Agency MBS purchases, reflecting investor portfolio rebalancing. We then document that Agency MREITs increased financial leverage during the later stages of QE, consistent with "reaching for yield" behavior. However, Agency MREITs countered the heightened solvency risk by extending repo maturity and increased hedging of their funding costs to reduce liquidity and interest rate risk. The findings suggest that research linking QE to increased credit risk-taking should account for contemporaneous changes in financing choices and risk management.

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“…The retail sector is composed of multiple tenants, whereas industrial and residential properties mostly consist of single tenants. This stark variation suggests rental price to vary amongst REITs in each property sector (Van Nieuwerburgh, 2019). Seemingly, these attributes indicate that each property sector REITs has a distinct line of business (Ertugrul and Giambona, 2011; Yavas and Yildirim, 2011).…”

Section: Introductionmentioning

confidence: 99%

The dynamic role of the Japanese property sector REITs in mixed-assets portfolio

Razak

2023

JPIF

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PurposeThis study examined the dynamic role of the Japanese property sector, particularly the real estate investment trusts (REITs), in mixed-asset portfolios of stocks and bonds, as well as office, retail, hotel and residential REITs.Design/methodology/approachDaily data were retrieved from 01 January 2008 to 31 December 2019. The sample time frame consisted of in-sample and out-of-sample periods. The dynamic conditional correlation-generalised autoregressive conditional heteroskedastic (DCC-GJRGARCH) model was deployed to obtain the forecast estimates of time-varying volatility of REITs and correlations with other assets. The estimates were employed to construct out-of-sample portfolios based on the three assets for daily investment. The five sets of portfolios with each individual property sector REITs, as well as a portfolio of stocks and bonds that served as a benchmark, were produced. The average utility for each set of portfolios was estimated and compared with the average utility of the benchmark portfolio. The average transaction cost (TC) for portfolio rebalancing was calculated as well.FindingsThe forecast of volatility estimates for each property sector revealed that each asset displayed a similar pattern with the differences in the volatility magnitude. Notably, hotel and retail REITs were more volatile than other property sector REITs. The property sector REITs exhibited a positive correlation with stocks but negatively linked with bonds. The results unveiled the diversification benefits of incorporating property sector REITs. The portfolio with property sector REITs had higher risk-adjusted returns and utility, compared to portfolio consisting of stocks and bonds. The benefits outweighed the TC for portfolio rebalancing.Practical implicationsThis study highlights the importance of quantifying the conditional time-varying volatility and correlations of the property sector REITs with other asset returns, especially for investment decision, to select and include property sector REITs in mixed-asset portfolios. For fund managers seeking liquid assets in daily investment, this analysis suggests the inclusion of hotel and retail REITs to enhance REITs' portfolio performance.Originality/valueThis study is the first to investigate the dynamic characteristics of the volatility and correlation of each property sector REITs with other financial assets by employing the conditional framework that accounted for short- and long-run persistency in economic shocks. The reported outcomes shed light on the differences in the underlying properties that contribute to the variances in dynamic volatility of each sector REITs, as well as REITs' correlations with stocks and bonds. This application enables the authors to transmit the dynamics of variance-covariance matrix amongst each property sector REITs, stocks and bonds into asset allocation problem on a daily basis.

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Why are REITS Currently So Expensive?

Cited by 33 publications

References 55 publications

Uncertainty premia in REIT returns

Uncertainty premia in REIT returns

Quantitative Easing and Agency MBS Investment and Financing Choices by Mortgage REITs

The dynamic role of the Japanese property sector REITs in mixed-assets portfolio

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