Frequency Space Correlation Between REITs and Capital Market Indices

Several studies have examined real estate investment trust (REIT) co-movement with stocks or bonds using traditional time domain based methods, such as linear regression or correlation. Results of these studies have produced inconsistent statistical model parameters. The erratic behavior of the models may have resulted from the different time periods in the studies, the REITs included in a study or the market indices. Another factor contributing to the variation of the models comes from the compression of cyclical information over a study?s time period by time domain based techniques. Cross-spectral analysis provides a frequency space method of examining the coherency (i.e., frequency space correlation) between two time series across all frequencies. This article contains an examination of the coherency between REITs and stock market indices and REITs and U.S. Treasury debt indices for the period 1989-95. Results of the coherency spectra show significant co-movement between REITs and stock market indices, while debt instruments show very few frequencies with significant coherency. Furthermore, phase spectra provide evidence of contemporaneous movement between REITs and stock indices at all frequencies.

Forecasting Dynamic Investment Timing under the Cyclic Behavior in Real Estate

This paper applies the Hodrck-Prescott (HP) filter to forecast short-term residential real estate prices under cyclical movements. We separate the trend component from the cyclical component. We show that each regional residential market reacts not only to previous price movements, but also that these regional markets react to previous shocks under Auto Regressive Integrated Moving Average (ARIMA) modeling. Using the S&P Case-Shiller Home Price Index, we compare our forecast to index values from the Chicago Mercantile Exchange (CME) Housing Futures and Options. Our study identifies possible systematic errors from the different price adjustments reflecting current market situations.Real estate investment; Real estate cycle; residential housing futures contract; Real estate risk hedging

The Analysis of Real Estate Cycles, Regime Segmentation and Structural Change Using Multiple Indices (or A Multiple Index Analysis of Real Estate Cycles and Structural Change)

This article explores real estate cycles and structural change at an overall industry level, focusing on three key questions. First, are real estate cycle stages distinct and observable? Second, can the cycle stages be modeled using variables and relationships that hold for extended periods? Third, can the impact of exogenous shocks that cause structural changes in the market be monitored and modeled? The results of the research are generally positive, suggesting that indeed the variables and relationships that distinguish various real estate cycle stages can be isolated, and are sufficiently stable to help model cyclical changes. Furthermore, the research suggests it is possible to track key exogenous shocks that trigger structural changes that affect cycle models.

Superior Real Estate Investment Performance: Enigma or Illusion? A Critical Review of the Literature

[Excerpt] The purpose of this paper is to critique the existing empirical evidence on the investment performance of real estate relative to alternative asset categories. The key issue which guides this review of the investment performance literature is whether abnormal real estate returns are merely an illusion which arises from the shortcomings associated with various real estate performance studies or are the result of an omission of more fundamental factors. We suggest that any superior return is a short-run phenomenon, because, according to capital market theory, all assets should exhibit similar risk and return characteristics in the long run. If real estate continues to possess superior performance in the long run, then this implies that fundamental factors have been omitted from the real estate pricing model. Moreover, we will propose that a world in which the capital asset pricing model holds might be compatible with the existing evidence, because most of the prior studies have focused on total risk rather than on systematic risk. l Consequently, all assets can plot on the security market line in equilibrium, given a CAPM world, regardless of whether one asset (portfolio) such as real estate dominates another asset (portfolio) such as stocks from a mean-variance perspective

The Functional Relationships and Use of Going-In and Going-Out Capitalization Rates

In performing a Discounted Cash Flow Analysis for an income-producing property, a traditional rule-of-thumb indicates that the going-out capitalization rate should be one-half to one percent higher than the going-in capitalization rate. So far, there has been no theoretical model or empirical evidence to support or to dispute this assertion. This paper develops a model to examine the determinants of the going-out capitalization rate, as well as the relationship between going-in and going-out capitalization rates in a complete market setting. The proposed model indicates that the rule-of-thumb can be challenged, and the selection of an appropriate going-out capitalization rate requires a careful examination of the changes in the assumed income-growth rates, changes in the assumed required rates of return, and changes in the assumed property-appreciation rates during and after the projected holding period. The functional relationship between the property-appreciation rate assumption required for Ellwood methods and the going-out capitalization rate assumption required for DCF analysis also is derived.

The Spatial Equilibrium of Intra-Regional Rates of Return and the Implications for Real Estate Portfolio Diversification

This paper examines the rates of return for office buildings in four Texas cities to test for the presence of geographical patterns. The findings indicate that a geographical pattern does exist, both on an inter-city and intra-city basis. These results indicate a heightened emphasis on geographical diversification of real estate portfolios is warranted. Further research in the area of capital/real estate market segmentation in the structuring of real estate portfolios is strongly suggested.

Technical report (Texas A & M University. Real Estate Center)

Technical report that discusses the impact of rental housing on the value of single-family homes

Special report (Texas A & M University. Real Estate Center)

Report that identifies databases with information regarding the real estate market

Highest and Best Use: The Evolving Paradigm

Highest and Best Use is often identified as the key concept supporting real estate use and value decisions. However, at best the concept has received ambiguous if not conflicting consideration as to its relevance in the literature of economics, finance, real estate, appraisal and other areas of study concerned with land use decisions and valuation. This paper addresses this ambiguity and identifies the theoretical premises of Highest and Best Use as employed in the various land use disciplines. The theoretical foundations as they have synthesized form the basis of a formal constrained optimization model for land use decisions. The model's logic identifies the need to include the cost of capital and location along with the physical, legal, infrastructure and market parameters discussed in the bulk of the economic and appraisal literature (including courses and professional practice). The financial and locational variables are needed in order to advance the use paradigm to fit the current context of problems facing real estate decisionmakers.Liu38_Highest_and_Best_Use.pdf: 1542 downloads, before Aug. 1, 2020