A Comparative Anatomy of REITs and Residential Real Estate Indexes: Returns, Risks and Distributional Characteristics

John Cotter and Richard Roll

Centre for Financial Markets Working Papers from Research Repository, University College Dublin

Abstract: Real Estate Investment Trusts (REITs) are the only truly liquid assets related to real estate investments. We study the behavior of U.S. REITs over the past three decades and document their return characteristics. REITs have somewhat less market risk than equity; their betas against a broad market index average about .65. Decomposing their covariances into principal components reveals several strong factors. REIT characteristics differ to some extent from those of the S&P/Case-Shiller (SCS) residential real estate indexes. This is partly attributable to methods of index construction. Our examination of REITs suggests that investment in real estate is far more risky than what might be inferred from the widely-followed SCS series.

Keywords: Real estate investment trusts; Risk--Econometric models (search for similar items in EconPapers)
Date: 2009-10
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http://hdl.handle.net/10197/2563 First version, 2009 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:rru:cfmwps:10197/2563

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