Do REITs Behave More Like Real Estate Now?
17 Pages Posted: 31 Dec 2007
Date Written: November 2007
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
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