Returns and Information Transmission Dynamics in Public and Private Real Estate Markets

46 Pages Posted: 17 Feb 2015

See all articles by David C. Ling

David C. Ling

University of Florida - Warrington College of Business Administration

Andy Naranjo

University of Florida - Warrington College of Business Administration

Date Written: Spring 2015

Abstract

This paper examines U.S. public and private commercial real estate returns at the aggregate level and by the four major property types over the 1994–2012 time period. Returns are carefully adjusted for differences between public and private markets in financial leverage, property type focus and management fees. Unconditionally, we find that passive portfolios of unlevered core real estate investment trusts (REITs) outperformed their private market benchmark by 49 basis points (annualized) over the 1994–2012 sample period. Our baseline vector autoregression results suggest that REIT returns do not embed additional commercial real‐estate‐specific information useful in predicting private market returns. These results strongly suggest that equity REIT returns react to fundamental (latent) asset pricing information more quickly than private market returns given their greater liquidity and price revelation. REITs therefore serve as a fundamental information transmission channel to private market returns when asset pricing variables are omitted.

Suggested Citation

Ling, David Curtis and Naranjo, Andy, Returns and Information Transmission Dynamics in Public and Private Real Estate Markets (Spring 2015). Real Estate Economics, Vol. 43, Issue 1, pp. 163-208, 2015, Available at SSRN: https://ssrn.com/abstract=2566018 or http://dx.doi.org/10.1111/1540-6229.12069

David Curtis Ling (Contact Author)

University of Florida - Warrington College of Business Administration ( email )

P.O. Box 117168
Gainesville, FL 32611
United States
352-392-9307 (Phone)
352-392-0301 (Fax)

Andy Naranjo

University of Florida - Warrington College of Business Administration ( email )

P.O. Box 117168
Gainesville, FL 32611-7168
United States
352-392-3781 (Phone)

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