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The sources of risk spillovers among US REITs: Asset similarities and regional proximity

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  • Roland Füss Zeno Adams
  • Felix Schindler

Abstract

In this paper, we estimate the risk spillovers among 74 U.S. REITs using the state-dependent sensitivity value-at-risk (SDSVaR) approach. This methodology allows for the quantification of the spillover size as a function of a companyís financial condition (tranquil, normal, and volatile REIT prices). We show that the size of risk spillovers is more than twice as large when REITs are in financial distress and find evidence for the impact of geographical proximity: REITs that have their properties located in close distance to the properties of other REITs show risk spillovers that are on average 33% higher than REITs that have similar properties but at a larger distance. We estimate the risk gradient to decrease nonlinearly and to have zero slope for property distances of more than 400 km. Our empirical findings highlight the relevance of geographical diversification and have important implications for the investment and risk management decisions of real estate investors, mortgage lenders, home suppliers, and policy makers.

Suggested Citation

  • Roland Füss Zeno Adams & Felix Schindler, 2012. "The sources of risk spillovers among US REITs: Asset similarities and regional proximity," ERES eres2012_140, European Real Estate Society (ERES).
    • Handle: RePEc:arz:wpaper:eres2012_140
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    Citations

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    Cited by:

    1. Walter D’Lima & Paul Schultz, 2022. "Buy-to-Rent Investors and the Market for Single Family Homes," The Journal of Real Estate Finance and Economics, Springer, vol. 64(1), pages 116-152, January.
    2. Sing, Tien Foo & Wang, Long, 2021. "Spillovers of Non-Fundamental Risks: The Tale of Two Securitized Real Estate Markets," International Real Estate Review, Global Social Science Institute, vol. 24(2), pages 185-220.
    3. Yufei Cao, 2021. "Measuring systemic risk and dependence structure between real estates and banking sectors in China using a CoVaR‐copula method," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 5930-5947, October.
    4. Christian Eckert, 2020. "Risk and risk management of spillover effects: Evidence from the literature," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 23(1), pages 75-104, March.

    More about this item

    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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