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Searching for a Common Factor in Public and Private Real Estate ReturnsAndrew AngColumbia Business School - Finance and Economics; National Bureau of Economic Research (NBER) Neil NabarFidelity Investments, Inc. - Fidelity Management & Research Samuel WaldFidelity Investments, Inc. - Fidelity Management & Research April 16, 2013 Abstract: We introduce a methodology to estimate common real estate returns and cycles across public and private real estate markets. We first place REIT indices and direct real estate — NCREIF appraisal-based and transaction-based indices (NPI and NTBI) — on a comparable basis by adjusting for leverage and sector. We extract a common real estate factor, which is allowed to be persistent, from all these markets. Individual real estate indices load on this common factor and they also are driven by persistent, idiosyncratic shocks. The common real estate factor is pro-cyclical and has low correlations with standard systematic factors from public markets. Short-run idiosyncratic deviations from the common real estate factor load on several capital market factors for REITs and on liquidity factors for direct real estate.
Number of Pages in PDF File: 27 Keywords: Real Estate, Direct Real Estate Investments, REITs JEL Classification: G12 working papers seriesDate posted: October 12, 2012 ; Last revised: April 17, 2013Suggested CitationContact Information
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