<abstract xmlns="http://www.w3.org/1999/xhtml"><p>This paper investigates changes in the nature of REITs by estimating the time-varying long-run relationship among securitized real estate, direct real estate, and stock performance. The informational environment of U.S. REITs has matured gradually since their introduction. As more information on this asset class has become available, the “true” nature of REITs has thus become more apparent. We find that the long-term elasticity of direct real estate total returns on REIT total returns has increased since 1980, and became significant at the beginning of the 1990s, while the elasticity of general equity total returns remained insignificant. During the 2000s, the underlying property market was able to predict nearly 30% of REIT variance in the long term. Consequently, ignoring changes in the “nature” of REITs may lead to an underestimation of the influence from the underlying property market, and misspecification of the optimal weights in the long-term inter-asset portfolio.</p></abstract>

This paper investigates changes in the nature of REITs by estimating the time-varying long-run relationship among securitized real estate, direct real estate, and stock performance. The informational environment of U.S. REITs has matured gradually since their introduction. As more information on this asset class has become available, the “true” nature of REITs has thus become more apparent. We find that the long-term elasticity of direct real estate total returns on REIT total returns has increased since 1980, and became significant at the beginning of the 1990s, while the elasticity of general equity total returns remained insignificant. During the 2000s, the underlying property market was able to predict nearly 30% of REIT variance in the long term. Consequently, ignoring changes in the “nature” of REITs may lead to an underestimation of the influence from the underlying property market, and misspecification of the optimal weights in the long-term inter-asset portfolio.

The Time-Varying Nature of Reits

Real Estate Management and Valuation

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

{"article-title":"The Time-Varying Nature of Reits"}

This paper investigates changes in the nature of REITs by estimating the time-varying long-run relationship among securitized real estate, direct real estate,...

The Time-Varying Nature of Reits

Published Online: Apr 16, 2018

Page range: 26 - 38

DOI: https://doi.org/10.2478/remav-2018-0003

Keywords
Time-varying cointegration, Extended Vector Error Correction Model, Direct Real Estate, Securitized Real Estate, Diversification

© 2018 Bing Zhu, published by De Gruyter Open

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

The Time-Varying Nature of Reits

Published Online: Apr 16, 2018

Page range: 26 - 38

DOI: https://doi.org/10.2478/remav-2018-0003

KeywordsTime-varying cointegration, Extended Vector Error Correction Model, Direct Real Estate, Securitized Real Estate, Diversification

© 2018 Bing Zhu, published by De Gruyter Open

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

Keywords
Time-varying cointegration, Extended Vector Error Correction Model, Direct Real Estate, Securitized Real Estate, Diversification