An Investigation into the Substitutability of Equity and Mortgage REITs in Real Estate Portfolios

J. Andrew Hansz (), Ying Zhang () and Tingyu Zhou
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J. Andrew Hansz: Old Dominion University
Ying Zhang: Fairfield University

The Journal of Real Estate Finance and Economics, 2017, vol. 54, issue 3, No 4, 338-364

Abstract: Abstract This paper reconciles the controversy regarding the substitutability between equity REITs (EREITs) and mortgage REITs (MREITs) in existing literature. Using CRSP/Ziman data from 1992 to 2011, we show that the driving economic factors on EREIT returns are different from those driving MREIT returns, which rejects the substitutability hypothesis. Additional tests confirm that causality runs unilaterally from EREITs to MREITs, implying the leading (subordinate) role of EREITs (MREITs). Finally, EREITs and MREITs possess disparate risk and return profiles under the full and sub-periods. In sum, strong evidence reveals that EREITs and MREITs are in fact not substitutable.

Keywords: Real estate investment trusts (REITs); Equity REITs; Mortgage REITs; Causality; Substitutability; Real estate portfolio (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s11146-016-9572-1

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