Time-Varying Betas of US REITs from 1972 to 2013

35 Pages Posted: 25 Jun 2008 Last revised: 26 Dec 2014

See all articles by Tien Foo Sing

Tien Foo Sing

National University of Singapore (NUS) - Department of Real Estate

I. Chun Tsai

Southern Taiwan University of Science and Technology - Department of Finance

Ming-Chi Chen

National Sun Yat-sen University - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: December 26, 2014

Abstract

This study estimates the time-varying REIT betas using a structural time series model using monthly REIT return data for the periods from 1972 to 2013. Based on the FTSE-NAREIT return indices for the equity REIT (EREIT) and mortgage REIT (MREIT), we found corroborative evidence of the temporal declines in the betas of the two REITs up to 1999. The time-varying beta characteristics of the two REIT betas are fundamentally different in the 2000s. While the MREIT betas continued to decline, the EREIT betas showed a sharp reversal to the downward trend. Coinciding with the low interest regime in the US, EREITs use more external debt to fund new acquisitions and development activities, and as a result, the EREIT betas increased sharply in 2000s. The EREIT data hit the peak in 2009; and EREIT beta declined thereafter when active deleveraging occurred in the market. Using firm level data, we constructed two leverage-sorted EREIT portfolios, and our empirical results do not rejected the leverage effects on time-varying EREIT betas. However, the leverage effect in our tests is not triggered by the declines in stock prices as proposed in the finance literature.

Keywords: Time-varying beta, Systematic Risk, Leverage Effects, Deleveraging, Equity REITs and Mortgage REITs

JEL Classification: G12

Suggested Citation

Sing, Tien Foo and Tsai, I. Chun and Chen, Ming-Chi, Time-Varying Betas of US REITs from 1972 to 2013 (December 26, 2014). Available at SSRN: https://ssrn.com/abstract=1151185 or http://dx.doi.org/10.2139/ssrn.1151185

Tien Foo Sing (Contact Author)

National University of Singapore (NUS) - Department of Real Estate ( email )

4 Architecture Drive
Singapore 117566
Singapore

I. Chun Tsai

Southern Taiwan University of Science and Technology - Department of Finance ( email )

Nan-Tia St.
Tainan Taiwain 710, Tainan
China

Ming-Chi Chen

National Sun Yat-sen University - Department of Finance ( email )

No.70, Lianhai Rd., Gushan District,
Kaohsiung City
Taiwan

HOME PAGE: http://cm.nsysu.edu.tw/~mcchen/index.html

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