Do Public Real Estate Returns Really Lead Private Returns?

45 Pages Posted: 25 Nov 2010 Last revised: 10 Dec 2013

See all articles by Elias Oikarinen

Elias Oikarinen

University of Oulu - Oulu Business School; University of Turku, Department of Economics

Martin Hoesli

University of Geneva - Geneva School of Economics and Management (GSEM); Swiss Finance Institute; University of Aberdeen - Business School

Camilo Serrano

IAZI AG - CIFI SA

Date Written: December 1, 2013

Abstract

We use sector level REIT and transaction-based direct real estate data for the U.S. to provide a clearer understanding of the dynamic relations between public and private real estate returns. We exclude leverage from REIT returns to make the REIT data more comparable with the direct market data. We also include economic fundamentals in the analysis to take account of the influence of fundamentals on real estate market dynamics. Moreover, we consider the influence of the ‘escrow lag’ in the recording of private market prices. Even when catering for those factors, the generalized impulse responses from estimated vector error-correction models provide evidence of REIT returns leading private returns in the office, retail, and apartment sectors, but not in the industrial sector. These lead-lag relations are due to the slow reaction of private market returns to shocks in REIT returns and also in the risk premium and economic sentiment. The lead-lag relations remain even when the constant-liquidity direct market index is used instead of the conventional index.

Keywords: Direct Real Estate; Securitized Real Estate; REITs; Vector Error-Correction Models; Generalized Impulse Response Function; Dynamics; Escrow Lag

JEL Classification: G14, C32

Suggested Citation

Oikarinen, Elias and Hoesli, Martin Edward Ralph and Serrano, Camilo, Do Public Real Estate Returns Really Lead Private Returns? (December 1, 2013). Swiss Finance Institute Research Paper No. 10-47, Available at SSRN: https://ssrn.com/abstract=1714990 or http://dx.doi.org/10.2139/ssrn.1714990

Elias Oikarinen

University of Oulu - Oulu Business School ( email )

Finland

University of Turku, Department of Economics ( email )

Turku, FIN-20500
Finland

Martin Edward Ralph Hoesli (Contact Author)

University of Geneva - Geneva School of Economics and Management (GSEM) ( email )

40 Boulevard du Pont d'Arve
Geneva 4, Geneva 1211
Switzerland
+41 22 379 8122 (Phone)
+41 22 379 8104 (Fax)

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

University of Aberdeen - Business School ( email )

Edward Wright Building
Dunbar Street
Aberdeen, Scotland AB24 3QY
United Kingdom
+41 22 379 8122 (Phone)
+41 22 379 8104 (Fax)

Camilo Serrano

IAZI AG - CIFI SA ( email )

Tramstrasse 10
Zurich, CH-8050
Germany

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
269
Abstract Views
2,443
rank
155,276
PlumX Metrics