The Profitability Premium in Real Estate Investment Trusts

31 Pages Posted: 8 Jan 2014

See all articles by John L. Glascock

John L. Glascock

University of Connecticut - School of Business - Center for Real Estate and Urban Economic Studies; European Business School

Ran Lu-Andrews

California Lutheran University, School of Management

Date Written: January 1, 2014

Abstract

Traditionally, we have assessed firm success relative to a two factor model using say size and a book-to-market ratio. However, recently Novy-Marx (2013) suggests that these measures may simple be a proxy for profitability in firms. The argument is that traditional profitability measures can be manipulated by management and thus cloud the relationship between measured profits and firm success. However, a cleaner measure of profitability better predicts performance than does size and book-to-market. Thus, the traditional empirical factors are replaced with a stronger theoretically predictive variable. Also, in that context at least for REITs, size and book-to-market lose their explanatory power.

Keywords: Profitability, Real Estate Investment Trusts, Return predictability, FFO, earnings

JEL Classification: G10, G11, G12

Suggested Citation

Glascock, John L. and Lu-Andrews, Ran, The Profitability Premium in Real Estate Investment Trusts (January 1, 2014). Available at SSRN: https://ssrn.com/abstract=2375431 or http://dx.doi.org/10.2139/ssrn.2375431

John L. Glascock (Contact Author)

University of Connecticut - School of Business - Center for Real Estate and Urban Economic Studies ( email )

Storrs, CT 06269
United States

European Business School ( email )

Gustav-Stresemann-Ring 3
Wiesbaden, Hessen 65189
Germany

Ran Lu-Andrews

California Lutheran University, School of Management ( email )

60 W. Olsen Road
School of Management
Thousand Oaks, CA California 91360
United States

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