Does Valuation - Indifferent Indexing Work for the Real Estate Market?
Posted: 1 Feb 2010 Last revised: 28 Dec 2016
Date Written: November 2, 2010
In historical testing, valuation-indifferent indexing produces statistically significant and economically large outperformance relative to traditional capitalization-weighted indexes. This result has been found for both U.S. and global equity data, as well as U.S. corporate bonds and emerging market bonds. This article reports a research application of the valuation-indifferent indexing method to construct two indexes covering U.S. and international-listed real estate companies. The authors find that the valuation-indifferent real estate indexes outperform the corresponding cap-weighted benchmark indexes by 3.96% (U.S. market) and 2.9% (global ex-U.S. market) per year. This finding suggests that using a valuation-indifferent indexing strategy can significantly improve the performance of passive real estate investing.
Keywords: Real Estate, REITs, Fundamental Indexing, Valuation-Indifferent Indexing, Alternative Indexing
JEL Classification: G12, G14
Suggested Citation: Suggested Citation