Volatility and the Cross-Section of Real Estate Equity Returns during Covid-19

Stanimira Milcheva ()
Additional contact information
Stanimira Milcheva: University College London

The Journal of Real Estate Finance and Economics, 2022, vol. 65, issue 2, No 5, 293-320

Abstract: Abstract This paper uses the global systemic shock associated with the outbreak of the novel coronavirus Covid-19 to assess the risk-return relationship in the cross-section of real estate equities in the US and in selected Asian countries. I construct regional Covid-19 Risk Factors (CRFs) to assess how the risk exposure of stocks to the pandemic affects their performance. I find substantial differences between stocks in Asia and the US as a result of the pandemic. During the early stages of the pandemic, the sensitivity of Asian real estate companies to the market becomes negative, while it remains positive and increases in the US. Real estate sectors experience strong divergence in performance in the US while little sectoral difference is observed in Asia. The most affected sectors in the US are retail and hotels, while in Asia it is office. A Fama–MacBeth regression shows evidence for a low-risk effect during the Covid period: while insignificant prior to the pandemic, the return-risk relationship becomes significantly negative during the Covid period, with valuation effects driving the results in both regions. Firms in the US perform significantly worse if their exposure to the pandemic is higher, which is not the case in Asia. The results point towards strong divergence of expectations between US and Asian real estate companies in the onset of Covid-19, which may be associated with the level of prior experience to similar pandemics.

Keywords: Covid-19 risk factor; Pandemic; Factor model; Fama–MacBeth; REITs (search for similar items in EconPapers)
JEL-codes: D84 G1 G14 I1 R30 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://link.springer.com/10.1007/s11146-021-09840-6 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:jrefec:v:65:y:2022:i:2:d:10.1007_s11146-021-09840-6

Ordering information: This journal article can be ordered from
http://www.springer. ... ce/journal/11146/PS2

DOI: 10.1007/s11146-021-09840-6

Access Statistics for this article

The Journal of Real Estate Finance and Economics is currently edited by Steven R. Grenadier, James B. Kau and C.F. Sirmans

More articles in The Journal of Real Estate Finance and Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().