A Comparative Anatomy of Residential Reits and Private Real Estate Markets: Returns, Risks and Distributional Characteristics

Real Estate Economics, Forthcoming

Posted: 31 Dec 2013

See all articles by John Cotter

John Cotter

University College Dublin; UCLA Anderson School of Management

Richard Roll

California Institute of Technology

Multiple version iconThere are 2 versions of this paper

Date Written: December 13, 2013

Abstract

Real Estate Investment Trusts (REITs) are the only truly liquid assets related to residential real estate investments. We study the behavior of U.S. Residential 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 .58. Decomposing their covariances into principal components reveals several strong factors. Residential REIT characteristics differ to some extent from those of the S&P/Case-Shiller (SCS) private real estate markets. This is partly attributable to methods of index construction. Our examination of REITs suggests that investment in residential real estate is far more risky than what might be inferred from the widely-followed SCS series. Although the SCS and REITs indicate little support for being able to predict each other, there is strong evidence of self-predictability for the series.

Keywords: REITs, Real Estate Indexes, Risk, Distributional Characteristics

Suggested Citation

Cotter, John and Roll, Richard W., A Comparative Anatomy of Residential Reits and Private Real Estate Markets: Returns, Risks and Distributional Characteristics (December 13, 2013). Real Estate Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2373364

John Cotter (Contact Author)

University College Dublin ( email )

School of Business, Carysfort Avenue
Blackrock, Co. Dublin
Ireland
353 1 716 8900 (Phone)
353 1 283 5482 (Fax)

HOME PAGE: http://www.ucd.ie/bankingfinance/staff/professorjohncotter/

UCLA Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Richard W. Roll

California Institute of Technology ( email )

1200 East California Blvd
Mail Code: 228-77
Pasadena, CA 91125
United States
626-395-3890 (Phone)
310-836-3532 (Fax)

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