Study of REIT ETF beta

Stoyu I. Ivanov

Journal of Risk Finance, 2016, vol. 17, issue 3, 347-369

Abstract: Purpose - The aim of this study is to examine real estate investment trust exchange-traded funds (REIT ETFs) and test for the existence of the “asymmetric beta puzzle” phenomenon in these financial instruments that are relatively new and are gaining popularity. The “asymmetric beta puzzle” phenomenon is used to identify the hedging and diversification benefits of a financial instrument. “Asymmetric beta puzzle” exists when betas in declining markets are higher than betas in advancing markets. Design/methodology/approach - To study 14 REIT ETFs by using monthly and daily Center for Research in Security Prices (CRSP) data. Capital asset pricing model (CAPM) and Fama–French three-factor model were used to estimate betas in REIT ETFs and those in advancing and declining markets. Both the S&P 500 and the CRSP value-weighted indices were used in the beta estimation. Two hypotheses with regard to betas in both advancing and declining markets were defined and tested to test for the existence of the “asymmetric beta puzzle” phenomenon. Findings - This study confirms the presence of the “asymmetric beta puzzle” in the data of monthly REIT ETFs as documented by Goldstein and Nelling (1999) and Chatrathet al.(2000) for REITs; however, this phenomenon was not found when using daily data, but quite the opposite – REIT ETF betas are higher in advancing markets than they are in declining markets – was found. Originality/value - Goldstein and Nelling (1999) and Chatrathet al.(2000) identify the phenomenon of “the asymmetric REIT-beta puzzle” in monthly REIT’s returns. This study revisits the phenomenon identified in the aforementioned authors’ studies by using daily data and a relatively new real estate financial instrument – REIT ETFs. Therefore, this paper fills a void in the literature and would benefit both institutional and retail investors in their portfolio designs.

Keywords: Exchange traded funds; ETFs; REITs; Asymmetric beta puzzle; Real estate investment trusts; REIT ETFs (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jrfpps:jrf-12-2015-0120

DOI: 10.1108/JRF-12-2015-0120

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