Leverage and Returns: A Cross-Country Analysis of Public Real Estate Markets

Leverage and Returns: A Cross-Country Analysis of Public Real Estate Markets The theoretical literature suggests a positive relation between financial leverage and asset returns, but the empirical evidence on this effect is mixed. We examine leverage effects in public real estate markets across eight countries with active public real estate markets. Cross-country public real estate markets provide an interesting testing ground given the significant use of leverage in real estate markets, the variation in REIT capital structures within and across countries, and the cross-country differences in liquidity, ownership, economic, institutional, and capital market structures. After carefully isolating leverage effects in firm-level returns, we find that leverage has a significant effect on returns both unconditionally and conditionally using standard asset pricing models. In addition, greater use of leverage during the 2007–2008 REIT crisis period is associated with larger share price declines. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Real Estate Finance and Economics Springer Journals

Leverage and Returns: A Cross-Country Analysis of Public Real Estate Markets

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Publisher
Springer US
Copyright
Copyright © 2014 by Springer Science+Business Media New York
Subject
Economics / Management Science; Regional/Spatial Science; Finance/Investment/Banking
ISSN
0895-5638
eISSN
1573-045X
D.O.I.
10.1007/s11146-014-9489-5
Publisher site
See Article on Publisher Site

Abstract

The theoretical literature suggests a positive relation between financial leverage and asset returns, but the empirical evidence on this effect is mixed. We examine leverage effects in public real estate markets across eight countries with active public real estate markets. Cross-country public real estate markets provide an interesting testing ground given the significant use of leverage in real estate markets, the variation in REIT capital structures within and across countries, and the cross-country differences in liquidity, ownership, economic, institutional, and capital market structures. After carefully isolating leverage effects in firm-level returns, we find that leverage has a significant effect on returns both unconditionally and conditionally using standard asset pricing models. In addition, greater use of leverage during the 2007–2008 REIT crisis period is associated with larger share price declines.

Journal

The Journal of Real Estate Finance and EconomicsSpringer Journals

Published: Nov 16, 2014

References

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