The Predictability of Returns on Equity REITs and Their Co-Movement with Other Assets
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Liu, Crocker H.; Mei, Jianping
Recent evidence suggests that the variation in the expected excess returns is predictable and arises from changes in business conditions. Using a multifactor latent variable model with time-varying risk premiums, we decompose excess returns into expected and unexpected excess returns to examine what determines movements in expected excess returns for equity REITs are more predictable than all other assets examined, due in part to cap rates which contain useful information about the general risk condition in the economy. We also find that the conditional risk premiums (expected excess returns) on EREITs move very closely with those of small cap stocks and much less with those of bonds.
equity real estate investment trusts; EREITS; returns; risk premiums
Required Publisher Statement: © Springer. Final version published as: Liu, C. H., & Mei, J. (1992). The predictability of returns on equity REITs and their co-movement with other assets. Journal of Real Estate Finance and Economics, 5(4), 401-418. Reprinted with permission. All rights reserved.