What Factors Determine International Real Estate Security Returns?

FAME Research Paper No. 50

46 Pages Posted: 6 May 2003

See all articles by Foort Hamelink

Foort Hamelink

Lombard Odier Asset Management (SA); VU University Amsterdam

Martin Hoesli

University of Geneva - Geneva School of Economics and Management (GSEM); Swiss Finance Institute; University of Aberdeen - Business School

Date Written: July 2002

Abstract

In this paper, we use constrained cross-section regressions to disentangle the effects of various factors on real estate security returns in 21 countries. A better knowledge of the risk factors driving real estate returns is crucial, whether a pure real estate portfolio is constructed or whether real estate is considered as an alternative asset class within the traditional stock portfolio. Besides a common factor, 'pure' country, size, and value/growth factors are considered. The value/growth measure that is used in this paper is a unique indicator developed by Salomon Smith Barney (SSB). It provides for each stock the relative importance of the value and growth components, rather than using a binary classification.

The value/growth factor is found to have a substantial and increasing effect on returns over the analyzed period February 1990-April 2002. Country factors are important determinants of real estate security returns also. Statistical analysis of the residuals indicates that additional 'hidden' factors most likely exist. These statistical factors are shown to explain about one third of specific returns on international real estate securities. Nevertheless, as is the case for traditional stock portfolios, stock picking keeps all its importance for real estate stocks as well.

Keywords: securitized real estate, international diversification, multi-factor model, value/growth

JEL Classification: C21, G11, G15

Suggested Citation

Hamelink, Foort and Hoesli, Martin Edward Ralph, What Factors Determine International Real Estate Security Returns? (July 2002). FAME Research Paper No. 50, Available at SSRN: https://ssrn.com/abstract=372041 or http://dx.doi.org/10.2139/ssrn.372041

Foort Hamelink

Lombard Odier Asset Management (SA) ( email )

6 avenue des Morgines
Petit-Lancy
Geneva, 1213
Switzerland

HOME PAGE: http://www.hamelink.com

VU University Amsterdam ( email )

De Boelelaan 1105
Amsterdam, ND North Holland 1081 HV
Netherlands

Martin Edward Ralph Hoesli (Contact Author)

University of Geneva - Geneva School of Economics and Management (GSEM) ( email )

40 Boulevard du Pont d'Arve
Geneva 4, Geneva 1211
Switzerland
+41 22 379 8122 (Phone)
+41 22 379 8104 (Fax)

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

University of Aberdeen - Business School ( email )

Edward Wright Building
Dunbar Street
Aberdeen, Scotland AB24 3QY
United Kingdom
+41 22 379 8122 (Phone)
+41 22 379 8104 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
949
Abstract Views
4,754
Rank
47,181
PlumX Metrics