Risk-Adjusted Performance of Real Estate Stocks: Evidence From Developing Markets

This paper examines the performance of real estate stocks listed in seven developing markets in East Asia between 1992 and 2002. Using panel regressions, the goal is to identify determinants of the risk-adjusted returns of real estate securities traded in these markets. The empirical evidence suggests that size, book-to-market value, capital structure and market diversification have significant influence on the performance of real estate securities. Asset structure and development exposure, however, do not appear to have any significant effect on the returns behavior, while dividend yield has limited influence. As expected, interest rates and market condition have significant impact on the returns of real estate stocks. The Asian Financial Crisis also has an adverse impact on stocks? performance.

Extrapolation Theory and the Pricing of REIT Stocks

This paper is the winner of the best paper on Real Estate Investment Trusts award (sponsored by the National Association of Real Estate Investment Trusts (NAREIT)] presented at the 2005 American Real Estate Society Annual Meeting. This study evaluates the investment prospects of value stocks in the real estate investment trust (REIT) market. Value stocks are defined as those that carry low prices relative to their earnings, dividends, book assets, or other measures of fundamental value. The empirical results show that from 1990 onwards, value REITs provide superior returns without exposing investors to higher risks. The evidence is consistent with the extrapolation theory, which attributes the mispricing to investors over extrapolating past corporate results into the future. Interestingly, the findings reveal that such extrapolation is asymmetric in the REIT market. While value REITs are underpriced in accordance with the extrapolation theory, no evidence is found that growth REITs are overpriced. The value anomaly also exhibited several temporal traits. Firstly, the value premium varies over time. Secondly, the magnitude of the premium is inversely associated with the market performance. Finally, the value anomaly is not evident in the pricing of REITs in the 1980s.