Are Public and Private Asset Returns and Risks the Same? Evidence from Real Estate Data

43 Pages Posted: 2 Nov 2013 Last revised: 30 Jan 2015

See all articles by Martin Hoesli

Martin Hoesli

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

Elias Oikarinen

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

Date Written: November 30, 2013

Abstract

This article aims to investigate the similarity of public and private real estate returns and risks over the relatively long horizon using data for the U.S and the U.K. The results show evidence of a one-to-one relationship between publicly traded REIT performance and privately traded direct real estate investment performance in three out of four U.S. real estate sectors and one out of two U.K. sectors included in the analysis. The return volatilities generally do not differ significantly between the REIT and direct real estate markets regardless of sector and investment horizon. The findings have important practical implications. First, they indicate that public and private real estate investments can be considered to work as good substitutes in an investment portfolio with several years investment horizon. Second, they suggest that REIT related ETFs and derivatives could be used to hedge risks caused by investors’ direct real estate holdings or by lending institutions’ mortgage lending inventory.

Keywords: REIT; Real estate; Return; Risk; Hedging; Portfolio allocation

JEL Classification: G11, G12, C32

Suggested Citation

Hoesli, Martin Edward Ralph and Oikarinen, Elias, Are Public and Private Asset Returns and Risks the Same? Evidence from Real Estate Data (November 30, 2013). Swiss Finance Institute Research Paper No. 13-56, Available at SSRN: https://ssrn.com/abstract=2348591 or http://dx.doi.org/10.2139/ssrn.2348591

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)

Elias Oikarinen

University of Oulu - Oulu Business School ( email )

Finland

University of Turku, Department of Economics ( email )

Turku, FIN-20500
Finland

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

Paper statistics

Downloads
307
Abstract Views
1,998
rank
135,599
PlumX Metrics