The Sources of Risk Spillovers Among U.S. REITs: Financial Characteristics and Regional Proximity

Real Estate Economics, Forthcoming

49 Pages Posted: 3 Feb 2013 Last revised: 30 Mar 2016

See all articles by Zeno Adams

Zeno Adams

University of St. Gallen

Roland Füss

University of St. Gallen - School of Finance

Felix Schindler

Steinbeis University Berlin - Center for Real Estate Studies; ZEW – Leibniz Centre for European Economic Research - International Finance and Financial Management

Date Written: February 3, 2013

Abstract

In this paper, we estimate the risk spillovers among 74 U.S. REITs using the state-dependent sensitivity value-at-risk (SDSVaR) approach. This methodology allows for the quantification of the spillover size as a function of a company’s financial condition (tranquil, normal, and volatile REIT prices). We show that the size of risk spillovers is more than twice as large when REITs are in financial distress and find evidence for the impact of geographical proximity: REITs that have their properties located in close distance to the properties of other REITs show risk spillovers that are on average 33% higher than REITs that have similar properties but at a larger distance. We estimate the risk gradient to decrease nonlinearly and to have zero slope for property distances of more than 250 miles. Our empirical findings provide first empirical evidence on the transmission of risk spillovers from underlying real positions to the securitized level of a company. Specifically, our results highlight the relevance of geographical diversification for REITs and have important implications for the investment and risk management decisions of real estate investors, mortgage lenders, home suppliers, and policy makers.

Keywords: REITs, fundamental value, geographic diversification, information diffusion, risk spillovers, state-dependent sensitivity VaR (SDSVaR)

JEL Classification: G01, G10, R12

Suggested Citation

Adams, Zeno and Füss, Roland and Schindler, Felix, The Sources of Risk Spillovers Among U.S. REITs: Financial Characteristics and Regional Proximity (February 3, 2013). Real Estate Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2211057 or http://dx.doi.org/10.2139/ssrn.2211057

Zeno Adams

University of St. Gallen ( email )

Bodanstrasse 6
St. Gallen, 9000
Switzerland

Roland Füss (Contact Author)

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland
+41 (0)71 224 70 42 (Phone)
+41 (0)71 224 70 88 (Fax)

HOME PAGE: http://www.sbf.unisg.ch/en/Lehrstuehle/Lehrstuhl_Fuess.aspx

Felix Schindler

Steinbeis University Berlin - Center for Real Estate Studies ( email )

Berlin
Germany

ZEW – Leibniz Centre for European Economic Research - International Finance and Financial Management ( email )

Postfach 103443
Mannheim, D-68034
Germany

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