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Real Estate Investments, Product Market Competition and Stock Returns

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  • Moussa Diop

Abstract

By limiting operating flexibility, real estate investments are found to increase firm risk, thus expected returns. This study introduces product market competition as a critical determinant of the relation between real estate investments and stock returns. As part of capacity strategies, these investments are generally associated with increased market power and lower cash flow volatility in oligopolistic industries. I present a simple model of oligopolistic competition showing a negative relation between real estate holdings and firm beta, and empirically confirm this prediction. Controlling for product market competition enhances identification of the endogenous relation between real estate investments and stock returns.

Suggested Citation

  • Moussa Diop, 2018. "Real Estate Investments, Product Market Competition and Stock Returns," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 46(2), pages 291-333, June.
    • Handle: RePEc:bla:reesec:v:46:y:2018:i:2:p:291-333
    DOI: 10.1111/1540-6229.12201
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    Cited by:

    1. Ying Zhang & J. Andrew Hansz, 2022. "Industry Concentration and U.S. REIT Returns," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 50(1), pages 247-267, March.
    2. Einar C. Kjenstad & Anil Kumar, 2022. "The effect of real estate prices on peer firms," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 50(4), pages 1022-1053, December.

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