Risk-Adjusted Performance of Real Estate

Risk-Adjusted Performance of Real Estate - Risk-Adjusted...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
JRER u Vol. 26 u No. 4 – 2004 Risk-Adjusted Performance of Real Estate Stocks: Evidence from Developing Markets Authors Joseph T. L. Ooi and Kim-Hiang Liow Abstract 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. Introduction In their attempt to enhance returns and diversify risks, corporations and pension funds in the United States have increased their investment overseas since the 1990s (Carman, 1997). Following this trend, traded stocks of real estate-related organizations provide an indirect route for investors to gain international real estate exposure without being burdened with the chores of acquiring, managing and disposing the physical real estate in distant countries. The advantages of including global real estate stocks to achieve more efficient portfolios have been highlighted in numerous studies, the more recent ones being Eichholtz and Koedijk (1996), Eichholtz (1997), Ling and Naranjo (2002) and Hamelink and Hoesli (2002). International diversification through real estate stocks is, however, more complicated than previously thought. Despite the presence of a worldwide systematic risk factor, a successful diversification strategy would require the investors to critically consider how country-specific and company-specific factors affect securitized real estate returns across different markets. Generally, diversification opportunities are greater across continents as compared to within continents. Country-specific factors are important determinants of international real estate security returns (Ling and Naranjo, 2002; Hamelink and Hoesli, 2002;
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
372 u Ooi and Liow and Bond, Karolyi and Sanders, 2003). Indeed, comparing the relative strength of country-specific and worldwide risk factors, Griffin (2002) concludes that the domestic factor is better able to explain time-series variation in stock returns than the global factor. Furthermore, potential diversification within countries should not be ignored given the existence of company-specific risk factors in international real estate returns. This paper examines the historical performance of property-related stocks publicly traded in seven stock markets in East Asia: Hong Kong, Indonesia, Malaysia, Singapore, South Korea, Taiwan and Thailand. Until the mid 1990s, the dominant story in the region was one of strong economic growth with high asset inflation.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 10/09/2011 for the course 323 3232 taught by Professor 3232 during the Spring '11 term at Apex College.

Page1 / 26

Risk-Adjusted Performance of Real Estate - Risk-Adjusted...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online