A New Factor Model for REIT Returns

43 Pages Posted: 11 Jan 2023

See all articles by Jie Cao

Jie Cao

The Hong Kong Polytechnic University - School of Accounting and Finance

Linjia Song

School of Management, Xiamen University

Xintong Zhan

Department of Finance, School of Management, Fudan University

Date Written: January 11, 2023

Abstract

We propose a new conditional factor model to explain the cross-section of REIT returns. Using the instrumented principal component analysis (IPCA) approach, we extract five latent factors and form a conditional factor model, which outperforms traditional factor models in explaining the cross-section of REIT returns. We further map the latent factors with REIT characteristics and identify firm size, operating cash flows, earnings-to-price ratio, dividend yield, momentum, and REIT-type dummies as the most important contributors. Lastly, we provide economic rationales for the latent factors.

Keywords: REIT Return, Conditional Factor Model, IPCA Approach

JEL Classification: G10, G11, G12, R30

Suggested Citation

Cao, Jie and Song, Linjia and Zhan, Xintong, A New Factor Model for REIT Returns (January 11, 2023). Available at SSRN: https://ssrn.com/abstract=4322327 or http://dx.doi.org/10.2139/ssrn.4322327

Jie Cao

The Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom, Kowloon
Hong Kong

HOME PAGE: http://sites.google.com/site/jiejaycao

Linjia Song

School of Management, Xiamen University ( email )

No.422 Siming Nan Road
Xiamen, Fujian 361005
China

Xintong Zhan (Contact Author)

Department of Finance, School of Management, Fudan University ( email )

No. 670, Guoshun Road
No.670 Guoshun Road
Shanghai, 200433
China

HOME PAGE: http://sites.google.com/view/xintongzhan

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