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

54 Pages Posted: 26 Mar 2018 Last revised: 26 Sep 2019

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

Wikrom Prombutr

California State University, Long Beach

Ying Zhang

Fairfield University

Tingyu Zhou

Florida State University

Date Written: March 25, 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 premium, and institutional money funds flow. In the short horizon, we observe unilateral Granger causality running from REITs to LPCs, suggesting that REITs are 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.

Suggested Citation

Glascock, John L. and Prombutr, Wikrom and Zhang, Ying and Zhou, Tingyu, Can Investors Hold More Real Estate? Evidence from Statistical Properties of Listed REIT Versus Non-REIT Property Companies in the U.S. (March 25, 2018). Journal of Real Estate Finance and Economics, Vol. 56, No. 2, 2018, Available at SSRN: https://ssrn.com/abstract=3148981

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

Ying Zhang (Contact Author)

Fairfield University ( email )

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

Tingyu Zhou

Florida State University ( email )

821 Academic Way
Tallahassee, FL 32306
United States

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