Common Risk Factors of REITs Returns Revisited

Alain Coen and Philippe Guardiola

ERES from European Real Estate Society (ERES)

Abstract: In this article we analyze the dynamic returns of REITs and test multi-factor asset pricing models based on real estate specific risk exposure, including market risk, size, value momentum, cash flow volatility, leverage, investment growth, term risk, default risk, liquidity risk and common macroeconomic factors. We also focus on the role of idiosyncratic risk and higher moments and scrutinize their relative importance to explain the decomposition of listed property companies returns on U.S. financial markets. We suggest the use of a new parsimonious common factors model to improve REITs valuation and to define their cost of capital. Revisiting the previous literature devoted to the role of leverage in the real estate industry, our empirical (un-conditional and conditional) results shed new light on leverage risk and idiosyncratic risk for U.S. REITs returns over a long period (2000-2021) marked by important crises.

Keywords: Asset Pricing; Leverage; Multifactor Models; REITs (search for similar items in EconPapers)
JEL-codes: R3 (search for similar items in EconPapers)
Date: 2023-01-01
New Economics Papers: this item is included in nep-rmg and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:arz:wpaper:eres2023_249

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