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Geographic Focus and Systematic Risk in REITs

Author

Listed:
  • Brigitte Frutig
  • Prashant Das

Abstract

We examine how the systematic risk of large commercial real estate owners is associated with geographic diversification. In particular, we analyze time-varying equity betas and geographic exposure of publicly traded pure-play lodging REITs. Contrary to popular expectation, we find that stock investors perceive smaller risk in geographic focus rather than diversification. Further, regional focus becomes insignificant in reducing the risk if the focus expands beyond two or three regions. The findings are robust to multiple measures of geographic diversification. Our study re-affirms the impact of geographic focus in the context of commercial real estate as a risk minimization strategy.

Suggested Citation

  • Brigitte Frutig & Prashant Das, 2017. "Geographic Focus and Systematic Risk in REITs," ERES eres2017_369, European Real Estate Society (ERES).
    • Handle: RePEc:arz:wpaper:eres2017_369
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    Keywords

    REIT; stock beta;

    JEL classification:

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

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