Commercial Real estate property Return Functionality: A Cross-Country Analysis by
David C. Ling and Andy Naranjo*
*Department of Finance, Insurance, and Real-estate Warrington University of Business University of Florida Gainesville, FL 32611-7168 Phone: (352) 392-0153 Fernkopie: (352) 392-0301
March 2150 Latest Revising: December 2000
We appreciate Piet Eichholtz, Pat Hendershott, Charles Keep, two unknown referees, and participants at the Maastricht-Cambridge House Investment Symposium for valuable comments and suggestions. We all also thank Elvan Aktas for valuable research assistance and Piet Eichholtz and Han Op 't Veld of Global Home Research pertaining to assistance with your data. Additionally , all of us thank real estate Research Institute for rendering funding support for this project.
Commercial Property Return Functionality: A Cross country Analysis
Abstract This newspaper investigates the return overall performance of publicly traded real estate firms. The analysis spans the 1984 to 1999 time frame and involves return data on more than 600 firms in 28 countries. The return data reveal a lot of variation in mean real estate returns and standard deviations across countries. Moreover, common Treynor percentages, which range country excess returns by estimated ОІeta on the community wealth profile, also reveal substantial variant across countries in excess real estate property returns every unit of systematic risk. However , when we estimate Jensen's alphas using both single and multifactor specifications, we detect tiny evidence of abnormal, risk-adjusted returns at the nation level. We do, however , find proof of a strong world-wide factor in worldwide real estate results. Furthermore, even after controlling for the consequence of world-wide methodical risk, an orthogonalized country-specific factor is extremely significant. This kind of suggests that real estate property securities might provide international diversification options.
Commercial Real Estate Return Performance: A Cross-Country Analysis 1 . Advantages A global real-estate securities market has slowly developed over the last two decades. In year-end 1999, the market benefit of public real estate firms was nearing $400 billion. This public market gives a vehicle pertaining to investors to construct international commercial real estate portfolios without the responsibility of acquiring, taking care of, and getting rid of direct real estate investments in far-away countries with unfamiliar legal, political, and market constructions. 1 Nevertheless , to maintain and improve the flow of investment capital in the international real estate property securities marketplace, performance benchmarks and family member performance way of measuring are vital. This newspaper investigates the return performance of public real estate businesses. The analysis spans the 1984 to 1999 period of time and includes return info on above 600 businesses in 28 countries. At the simplest level, performance examination consists of evaluating historical results and their variances. However , a key problem with this simple complete, utter, absolute, wholehearted approach is that it does not explicitly consider the potential risks associated with the earnings. In order to get more accurate risk-return characteristics, also to examine so why a specific efficiency level occurred, more exact estimates of risk happen to be needed. As of yet, the most traditionally used approach to risk adjustment has been the use of single-ОІeta models such as the capital advantage pricing style (CAPM). 2 Although the single-ОІeta approach is a positive very first step toward handling for organized sources of return variation once assessing go back performance, we have a growing general opinion that single-ОІeta models offer an inadequate information of secureness pricing. Intended for 1
Observe Eichholtz and Koedijk (1996) for a comprehensive discussion of the evolution and importance of international real estate securities markets. See, for example , Glascock (1991), Glascock and Barnes (1995), Gyourko and Kiem (1992), Hartzell and Mengden (1987),...