The Cross Section of Expected Real Estate Returns: Insights from Investment-Based Asset Pricing

Shaun Bond () and Chen Xue ()
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Shaun Bond: University of Cincinnati
Chen Xue: University of Cincinnati

The Journal of Real Estate Finance and Economics, 2017, vol. 54, issue 3, No 8, 403-428

Abstract: Abstract Motivated by investment-based asset pricing, we show that two firm fundamentals, investment and profitability, have substantial predictive power for REIT returns. The return predictability of investment and profitability is not subsumed by conventional models and can be useful for understanding the cross section of expected REIT returns. To illustrate, we construct an investment-based factor model for REITs that consists of a market factor, an investment factor, and a profitability factor. The investment-based model outperforms conventional models in capturing well-known cross-sectional patterns in REIT returns. Our findings suggest that incorporating investment-based asset pricing can be a promising direction for future real estate finance research.

Keywords: REITs; Asset pricing (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (14)

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DOI: 10.1007/s11146-016-9573-0

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