Idiosyncratic Risk and REIT Returns

Joseph Ooi (), Jingliang Wang () and James Webb ()

The Journal of Real Estate Finance and Economics, 2009, vol. 38, issue 4, 420-442

Abstract: The volatility of a stock returns can be decomposed into market and firm-specific volatility, with the former commonly known as systematic risk and the later as idiosyncratic risk. This study examines the relevance of idiosyncratic risk in explaining the monthly cross-sectional returns of REIT stocks. Contrary to the CAPM theory, a significant positive relationship is found between idiosyncratic volatility and the cross-sectional returns. This suggests that firm-specific risk matters in REIT pricing. The regression results further show that once idiosyncratic risk is controlled for in the asset-pricing model, the size and book-to-market equity ratio factors ceased to be significant. The explanatory power of the momentum effect remains robust in the presence of idiosyncratic risk. Copyright Springer Science+Business Media, LLC 2009

Keywords: Idiosyncratic risk; Asset pricing; REIT stocks (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (26)

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DOI: 10.1007/s11146-007-9091-1

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