Securitized Real Estate and its Link With Financial Assets and Real Estate: An International Analysis

Abstract

This paper provides cross-country evidence of the link between securitized real estate and stocks, bonds, and direct real estate. First, we investigate the behavior of betas in 16 countries and identify the causes of their variation. Second, securitized real estate returns are regressed on "pure" stock, bond and real estate factors. The betas are generally found to decrease over the 1990-2004 period, but the causes for such decline differ across countries. Securitized real estate returns are found to be positively associated with stock and direct real estate returns, but negatively related to bond returns. Financial assets contribute greatly to the variance of securitized real estate, while the impact of direct real estate is limited. However, a large fraction of the variance is not accounted for by these factors, especially in the U.S., suggesting that other factors are at play.

Keywords: Multifactor Models, Betas, Pure Factors, Securitized Real Estate

JEL Classification: G12, C21, C51