Equity Capital Flows and Demand for Reits

Posted: 18 May 2006

See all articles by Crystal Yan Lin

Crystal Yan Lin

Eastern Illinois University - School of Business

Kenneth Yung

Old Dominion University - Finance

Abstract

REITs are attractive to investors due to their unique characteristics such as high dividend yields, low correlation with common stocks, and a potential hedge against inflation. Thus the market demand curve of REIT equities may not be horizontal. This paper examines the shape of the market demand curve for REIT equities by employing REIT equity capital flows as a proxy for REIT aggregate demand. Our results do not support a downward demand curve for REIT equities. That is, we do not find evidence for the price-pressure effect in REIT returns. Instead, we find it is REIT returns that affect REIT equity capital flows rather than REIT equity flows that affect REIT returns. The results are consistent when we allow for the presence of market fundamental variables in our analysis. In addition, a variance decomposition analysis suggests that REIT equity capital flows do not cause revisions in expected cash flows (dividends) that are strong enough to impact REIT returns. Thus our findings are consistent with implications that the market demand curve for REIT equities is horizontal.

Keywords: REITs, demand curve, equity capital flows

Suggested Citation

Lin, Crystal Yan and Yung, Kenneth, Equity Capital Flows and Demand for Reits. Journal of Real Estate Finance and Economics, Vol. 33, No. 3, 2006. Available at SSRN: https://ssrn.com/abstract=902884

Crystal Yan Lin (Contact Author)

Eastern Illinois University - School of Business ( email )

Charleston, IL 61920-3099
United States

Kenneth Yung

Old Dominion University - Finance ( email )

School of Business and Public Administration
Norfolk, VA 23529-0222
United States
757-683-3573 (Phone)

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