On the Hybrid Nature of REITs

Posted: 25 Jan 2012

See all articles by Walter Boudry

Walter Boudry

Cornell University

N. Edward Coulson

Pennsylvania State University, College of the Liberal Arts - Department of Economic; National Bureau of Economic Research (NBER)

Jarl G. Kallberg

New York University (NYU) - Department of Finance

Crocker Herbert Liu

Cornell University - School of Hotel Administration

Date Written: January 24, 2012

Abstract

The consensus that emerges from the current research on the linkage between securitized and direct investment in real estate is that direct (private) real estate returns play a relatively minor role in the real estate investment trust (REIT) return generating process. However, this result may at least partially be due to the coarseness of the measures of direct real estate returns or the relatively short return horizons used in previous studies. This study takes a different and unique perspective. Unlike earlier studies we do not use aggregated, average appraisal based returns on direct real estate investment. Instead, we use the MIT TBI indexes, which are transaction based price indexes, available both on the aggregate and sub-index levels. We find that the relation between REIT and direct real estate returns appears to be stronger at longer horizons. More specifically, using a cointegration framework, we find robust evidence that REITs and the underlying real estate are related and that they share a long run equilibrium. Interestingly, we find that both REITs and direct real estate returns adjust towards this long run relationship. When we examine property type level data we find similar results.

Keywords: REITs, Cointegration

Suggested Citation

Boudry, Walter and Coulson, N. Edward and Kallberg, Jarl G. (Jerry) and Liu, Crocker Herbert, On the Hybrid Nature of REITs (January 24, 2012). Journal of Real Estate Finance and Economics, Vol. 44, No. 1/2, 2012. Available at SSRN: https://ssrn.com/abstract=1991372

Walter Boudry (Contact Author)

Cornell University ( email )

Ithaca, NY 14853
United States

N. Edward Coulson

Pennsylvania State University, College of the Liberal Arts - Department of Economic ( email )

524 Kern Graduate Building
University Park, PA 16802-3306
United States
814-863-0625 (Phone)
814-863-4775 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Jarl G. (Jerry) Kallberg

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0339 (Phone)
212-995-4233 (Fax)

Crocker Herbert Liu

Cornell University - School of Hotel Administration ( email )

435B Statler Hall
Ithaca, NY 14853-6902
United States

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