Leverage and Returns: A Cross-Country Analysis of Public Real Estate Markets

Emanuela Giacomini (), David Ling () and Andy Naranjo ()

The Journal of Real Estate Finance and Economics, 2015, vol. 51, issue 2, 125-159

Abstract: The theoretical literature suggests a positive relation between financial leverage and asset returns, but the empirical evidence on this effect is mixed. We examine leverage effects in public real estate markets across eight countries with active public real estate markets. Cross-country public real estate markets provide an interesting testing ground given the significant use of leverage in real estate markets, the variation in REIT capital structures within and across countries, and the cross-country differences in liquidity, ownership, economic, institutional, and capital market structures. After carefully isolating leverage effects in firm-level returns, we find that leverage has a significant effect on returns both unconditionally and conditionally using standard asset pricing models. In addition, greater use of leverage during the 2007–2008 REIT crisis period is associated with larger share price declines. Copyright Springer Science+Business Media New York 2015

Keywords: Asset returns; Leverage; REITs; Cross-country real estate returns; Financial constraints; Crisis; G110; G120; G150; G320; G01 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (18)

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DOI: 10.1007/s11146-014-9489-5

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