Hedged REIT Indices

Youguo Liang, Arjun Chatrath and James Webb

Journal of Real Estate Literature, 1996, vol. 4, issue 2, 175-184

Abstract: We present two models that modify real estate investment trusts (REITs) indices in order to track real estate performance. The first model, which is a modified version of Gilibcrto's (1993) model, is used to calculate a price-hedged index. The second model, developed by Liang, Chatrath, and McIntosh (1995). is used to calculate a total-hedged index. We apply the two models to the NAREIT equity REIT index, calculating the price-hedged and total-hedged equity REIT return indices. We provide a data set comprising the price-hedge ratio, total-hedge ratio, price-hedged index, and total-hedged index on a monthly basis over the period from January 1976 through December 1994. Since REITs do not suffer from the appraisal-smoothing problem associated with appraisal-based indices, the hedged REIT indices can replace appraisal-based indices such as the Russell-NCREIF index in many real estate studies. For example, the hedged REIT indices can be used in asset-allocation studies because they capture the correlation of real estate with other assets more accurately than the Russell-NCREIF index.

Date: 1996
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DOI: 10.1080/10835547.1996.12090054

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