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Style Analysis in Real Estate Markets: Beyond the Sectors and Regions Dichotomy

Franz Fuerst and Gianluca Marcato ()

Real Estate & Planning Working Papers from Henley Business School, University of Reading

Abstract: While style analysis has been studied extensively in equity markets, applications of this valuable tool for measuring and benchmarking performance and risk in a real estate context are still relatively new. Most previous real estate studies on this topic have identified three investment categories (rather than styles): sectors, administrative regions and economic regions. However, the low explanatory power reveals the need to extend this analysis to other investment styles. We identify four main real estate investment styles and apply a multivariate model to randomly generated portfolios to test the significance of each style in explaining portfolio returns. Results show that significant alpha performance is significantly reduced when we account for the new investment styles, with small vs. big properties being the dominant one. Secondly, we find that the probability of obtaining alpha performance is dependent upon the actual exposure of funds to style factors. Finally we obtain that both alpha and systematic risk levels are linked to the actual characteristics of portfolios. Our overall results suggest that it would be beneficial for real estate fund managers to use these style factors to set benchmarks and to analyze portfolio returns.

Keywords: investment styles; commercial real estate; portfolio analysis; performance measurement (search for similar items in EconPapers)
JEL-codes: C20 G1 G11 G12 R33 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2009
New Economics Papers: this item is included in nep-rmg and nep-ure
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Citations: View citations in EconPapers (3)

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Working Paper: STYLE ANALYSIS IN REAL ESTATE MARKETS: BEYOND THE SECTORS AND REGIONS DICHOTOMY (2008) Downloads
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