Tracking the Evolution of Idiosyncratic Risk and Cross-Sectional Expected Returns for US REITs

Tracking the Evolution of Idiosyncratic Risk and Cross-Sectional Expected Returns for US REITs This paper adopts the methodology in Bali and Cakici (Journal of Financial & Quantitative Analysis, 43, 29–58, 2008) in tracking the evolution of the relation between equity REITs’ idiosyncratic risk and their cross-sectional expected returns between 1981 and 2010. In addition to the full sample period, we study this relation for (i) January 1981–December 1992, (ii) January 1993–September 2001, (iii) November 2001–August 2008 and (iv) November 2001–December 2010 and produce empirical results for (i) all sample REITs, (ii) REITs with a price greater than $10 or (iii) REITs with a price greater than $5. Each period represents different dynamics (including the Global Financial Crisis) in the life of the REIT industry and leads to a different hypothesis. Further, we present comparative results based on the Fama-French 3- and 4-factor models. Overall, we document a negative relation between idiosyncratic risk and cross-sectional expected returns and demonstrate that this negative relation changes over time. These findings amplify the “idiosyncratic volatility puzzle,” as reported in the recent finance literature. Interestingly, REITs with a price of $5-to-$10 do well in 2009 and 2010. Further, the momentum factor appears to be influential since the first-ever listing of a REIT in the S&P500 Index in early October 2001. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Real Estate Finance and Economics Springer Journals

Tracking the Evolution of Idiosyncratic Risk and Cross-Sectional Expected Returns for US REITs

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Publisher
Springer US
Copyright
Copyright © 2013 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/s11146-013-9410-7
Publisher site
See Article on Publisher Site

Abstract

This paper adopts the methodology in Bali and Cakici (Journal of Financial & Quantitative Analysis, 43, 29–58, 2008) in tracking the evolution of the relation between equity REITs’ idiosyncratic risk and their cross-sectional expected returns between 1981 and 2010. In addition to the full sample period, we study this relation for (i) January 1981–December 1992, (ii) January 1993–September 2001, (iii) November 2001–August 2008 and (iv) November 2001–December 2010 and produce empirical results for (i) all sample REITs, (ii) REITs with a price greater than $10 or (iii) REITs with a price greater than $5. Each period represents different dynamics (including the Global Financial Crisis) in the life of the REIT industry and leads to a different hypothesis. Further, we present comparative results based on the Fama-French 3- and 4-factor models. Overall, we document a negative relation between idiosyncratic risk and cross-sectional expected returns and demonstrate that this negative relation changes over time. These findings amplify the “idiosyncratic volatility puzzle,” as reported in the recent finance literature. Interestingly, REITs with a price of $5-to-$10 do well in 2009 and 2010. Further, the momentum factor appears to be influential since the first-ever listing of a REIT in the S&P500 Index in early October 2001.

Journal

The Journal of Real Estate Finance and EconomicsSpringer Journals

Published: Mar 17, 2013

References

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