Can Investors Hold More Real Estate? Evidence Form Statistical Properties of Listed REIT Versus Non-Reit Property Companies in the U.S.

Posted: 2 Mar 2018 Last revised: 20 Apr 2018

See all articles by Ying Zhang

Ying Zhang

Fairfield University - Charles F. Dolan School of Business

John L. Glascock

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

Wikrom Prombutr

California State University, Long Beach

Tingyu Zhou

Independent

Date Written: February 21, 2018

Abstract

We examine the diversification properties of holding listed REITs versus listed property companies (LPCs). If holding LPCs in addition to REITs provides excess diversification benefits, this would imply that investors have a larger pool of real estate assets in which to invest. Preliminary tests, however, show they are not comparable enough to be direct substitutes for each other. In portfolio performance analysis, LPCs alone provide certain diversification benefits, but the gains are slightly lower than those provided by REITs alone. We find little, if any, additional gains from holding both assets simultaneously. Further investigation suggests a long-term cointegration relationship between these two assets that is driven by property market conditions, yield term structure, default risk premiums, and institutional money funds flow. In the short horizon, the leading index, while LPCs are followers in the system. Overall, our findings suggest that LPCs widen the number of public real estate securities that can be used. However, they are not quite as effective as REITs in terms of diversification benefits.

Keywords: REITs; Listed property companies (LPCs); Cointegration; Causality; Portfolios

Suggested Citation

Zhang, Ying and Glascock, John L. and Prombutr, Wikrom and Zhou, Tingyu, Can Investors Hold More Real Estate? Evidence Form Statistical Properties of Listed REIT Versus Non-Reit Property Companies in the U.S. (February 21, 2018). Journal of Real Estate Finance and Economics, Vol. 56, No. 2, 2018, University of Connecticut School of Business Research Paper No. 18-13, Available at SSRN: https://ssrn.com/abstract=3127671

Ying Zhang (Contact Author)

Fairfield University - Charles F. Dolan School of Business ( email )

N. Benson Road
Fairfield, CT 06824
United States

John L. Glascock

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

Wikrom Prombutr

California State University, Long Beach ( email )

1250 Bellflower Blvd
Long Beach, CA 90064
United States

Tingyu Zhou

Independent ( email )

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