Property-type diversification and REIT performance: an analysis of operating performance and abnormal returns

Randy Anderson (), Justin Benefield () and Matthew Hurst ()

Journal of Economics and Finance, 2015, vol. 39, issue 1, 48-74

Abstract: This paper examines the effect of property-type diversification in equity real estate investment trusts (REITs) from 1995 to 2006. A strong positive relationship is documented between property-type diversification and return on assets, return on equity, and Tobin’s Q. The diversification benefit comes from both the ability to select better performing property types in “hot” markets and the limited exposure to poorly performing property types in “cold” markets. Diversified REITs produce higher cash flows relative to equity as a result of a broader opportunity set; moreover, return on assets increases with the degree of diversification, which suggests significant shielding to property-type specific risk. Additionally, results indicate that diversified REITs operate and trade above their contemporaneous predicted values, which are calculated using imputed multipliers from specialized REITs. The evidence shows that the market is operating efficiently and has incorporated this information; diversified REITs Q ratios are significantly greater than specialized REITs. Copyright Springer Science+Business Media, LLC 2015

Keywords: REITs; Property-type Diversification; Abnormal Returns; L25; G11 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (9)

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DOI: 10.1007/s12197-012-9232-0

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