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Do REITs Behave More Like Real Estate Now?

I. Chun Tsai
Southern Taiwan University of Technology - Department of Finance

Ming-Chi Chen
National Sun Yat-sen University, Taiwan - Department of Finance

Tien Foo Sing
National University of Singapore (NUS) - Department of Real Estate

November 2007

Abstract:
This paper applies the Time Varying Coefficient (TVC) approach to examine the systematic risks of the National Association of Real Estate Investment Trusts (NAREIT) return index using the Capital Asset Pricing Model (CAPM) framework. We found that the systematic risk of Real Estate Investment Trusts (REITs) is time varying with the REIT-beta declining over time. The declining beta reflects the greater acceptance of REITs as an important asset class in investors' portfolios. Investors would accept a lower risk premium because investors are better able to price the underlying assets the longer REIT assets are securitized. The results support the view that the real estate securities behave more like real estate and less like the general stock market.

Keywords: Real Estate Investment Trusts, NAREIT, Securitized, Systematic Risk, Time Varying Coefficient

Working Paper Series

Date posted: December 31, 2007 ; Last revised: December 31, 2007

Suggested Citation

Tsai, I. Chun, Chen, Ming-Chi and Sing, Tien Foo, Do REITs Behave More Like Real Estate Now? (November 2007). Available at SSRN: http://ssrn.com/abstract=1079590

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Contact Information

Tien Foo Sing (Contact Author) National University of Singapore (NUS) - Department of Real Estate ( email ) 4 Architecture Drive Singapore 117566 Singapore
Ming-Chi Chen National Sun Yat-sen University, Taiwan - Department of Finance ( email )
I. Chun Tsai Southern Taiwan University of Technology - Department of Finance ( email ) Tainan Taiwain 710 Republic of China