A Comparative Anatomy of REITS and Residential Real Estate Indexes: Returns, Risks and Distributional Characteristics

Cotter, John; Roll, Richard

doi:10.2139/ssrn.1517196

Download This Paper

Open PDF in Browser

Add Paper to My Library

A Comparative Anatomy of REITS and Residential Real Estate Indexes: Returns, Risks and Distributional Characteristics

28 Pages Posted: 7 Dec 2009

See all articles by John Cotter

Richard Roll

California Institute of Technology

There are 2 versions of this paper

Date Written: October 28, 2009

Abstract

Real Estate Investment Trusts (REITs) are the only truly liquid assets related to real estate investments. We study the behavior of U.S. REITs over the past three decades and document their return characteristics. REITs have somewhat less market risk than equity; their betas against a broad market index average about .65. Decomposing their covariances into principal components reveals several strong factors. REIT characteristics differ to some extent from those of the S&P/Case-Shiller (SCS) residential real estate indexes. This is partly attributable to methods of index construction. Our examination of REITs suggests that investment in real estate is far more risky than what might be inferred from the widely-followed SCS series.

Keywords: REITs, real estate risk

Suggested Citation: Suggested Citation

Cotter, John and Roll, Richard W., A Comparative Anatomy of REITS and Residential Real Estate Indexes: Returns, Risks and Distributional Characteristics (October 28, 2009). Available at SSRN: https://ssrn.com/abstract=1517196 or http://dx.doi.org/10.2139/ssrn.1517196