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Time-Varying Betas of US REITs from 1972 to 2013

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  • Tien Sing
  • I-Chun Tsai
  • Ming-Chi Chen

Abstract

This study estimates the time-varying REIT betas with a structural time series model using monthly REIT return data for the periods from 1972 to 2013. Based on the FTSE-NAREIT return indices for the equity REIT (EREIT) and mortgage REIT (MREIT), we found corroborative evidence of the temporal declines in the betas of the two REITs up to 1999. The time-varying beta characteristics of the two REIT betas are fundamentally different in the 2000s. While the MREIT betas continued to decline, the EREIT betas showed a sharp reversal of the downward trend. Coinciding with the low interest regime in the US, EREITs used more external debt to fund new acquisitions and development activities, and as a result, the EREIT betas increased sharply in 2000s. The EREIT betas hit the peak in 2009; and declined thereafter when active deleveraging occurred in the market. Using firm level data, we construct two leverage-sorted EREIT portfolios, and our empirical results do not reject the leverage effects on time-varying EREIT betas. However, we find that the leverage effect is not triggered by the declines in stock prices as proposed in the finance literature. Copyright Springer Science+Business Media New York 2016

Suggested Citation

  • Tien Sing & I-Chun Tsai & Ming-Chi Chen, 2016. "Time-Varying Betas of US REITs from 1972 to 2013," The Journal of Real Estate Finance and Economics, Springer, vol. 52(1), pages 50-72, January.
    • Handle: RePEc:kap:jrefec:v:52:y:2016:i:1:p:50-72
    DOI: 10.1007/s11146-015-9502-7
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    Cited by:

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    2. Martin Hoesli & Stanimira Milcheva & Alex Moss, 2020. "Is Financial Regulation Good or Bad for Real Estate Companies? – An Event Study," The Journal of Real Estate Finance and Economics, Springer, vol. 61(3), pages 369-407, October.
    3. Mensi, Walid & Reboredo, Juan C. & Ugolini, Andrea & Vo, Xuan Vinh, 2022. "Switching connectedness between real estate investment trusts, oil, and gold markets," Finance Research Letters, Elsevier, vol. 49(C).
    4. Carmelo Giaccotto & Erasmo Giambona & Yanhui Zhao, 2021. "Short-Term and Long-Term Discount Rates For Real Estate Investment Trusts," The Journal of Real Estate Finance and Economics, Springer, vol. 63(3), pages 493-524, October.
    5. Luke Lin & Wen-Yuan Lin, 2018. "Does the major market influence transfer? Alternative effect on Asian stock markets," Review of Quantitative Finance and Accounting, Springer, vol. 50(4), pages 1169-1200, May.
    6. Masud Alam, 2021. "Time Varying Risk in U.S. Housing Sector and Real Estate Investment Trusts Equity Return," Papers 2107.10455, arXiv.org.
    7. Yener Cos‚kun & A. Sevtap Selcuk-Kestel & Bilgi Yilmaz, 2017. "Diversification benefit and return performance of REITs using CAPM and Fama-French: Evidence from Turkey," Borsa Istanbul Review, Research and Business Development Department, Borsa Istanbul, vol. 17(4), pages 199-215, December.

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    More about this item

    Keywords

    Time-varying beta; Systematic risk; Leverage effects; Deleveraging; Equity REITs and Mortgage REITs; G1;
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    JEL classification:

    • G1 - Financial Economics - - General Financial Markets

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