An Investigation into the Substitutability of Equity and Mortgage Reits in Real Estate Portfolios

Posted: 18 Mar 2017

See all articles by Ying Zhang

Ying Zhang

Fairfield University

J. Andrew Hansz

E.V. Williams Center for Real Estate

Tingyu Zhou

Florida State University

Date Written: March 16, 2017

Abstract

This paper reconciles the controversy regarding the substitutability between equity REITs (EREITs) and mortgage REITs (MREITs) in existing literature. Using CRSP/Ziman data from 1992-2011, we show that the driving economic factors on EREIT returns are different from those driving MREIT returns, which rejects the substitutability hypothesis. Additional tests confirm that causality runs unilaterally from EREITs to MREITs, implying the leading (subordinate) role of EREITs (MREITs). Finally, EREITs and MREITs possess disparate risk and return profiles under the full and sub-periods. In sum, strong evidence reveals that EREITs and MREITs are in fact not substitutable.

Keywords: real estate investment trusts (REITs), equity REITs, mortgage REITs, causality

Suggested Citation

Zhang, Ying and Hansz, J. Andrew and Zhou, Tingyu, An Investigation into the Substitutability of Equity and Mortgage Reits in Real Estate Portfolios (March 16, 2017). Journal of Real Estate Finance and Economics, Vol. 54, No. 3, 2017, Available at SSRN: https://ssrn.com/abstract=2934533

Ying Zhang (Contact Author)

Fairfield University ( email )

Dolan School of Business
1073 North Benson Road
Fairfield, CT 06824
United States

J. Andrew Hansz

E.V. Williams Center for Real Estate ( email )

Norfolk, VA 23529-0222
United States
7576833505 (Phone)

Tingyu Zhou

Florida State University ( email )

821 Academic Way
Tallahassee, FL 32306
United States

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