Please use this identifier to cite or link to this item: https://doi.org/10.1016/j.jhe.2010.06.001
Title: Idiosyncratic risk, market risk and correlation dynamics in the US real estate investment trusts
Authors: Liow, K.H. 
Addae-Dapaah, K. 
Keywords: Correlations
Expected returns
Idiosyncratic risk
Market risk
Real estate investment trusts
Time trends
Issue Date: 2010
Source: Liow, K.H., Addae-Dapaah, K. (2010). Idiosyncratic risk, market risk and correlation dynamics in the US real estate investment trusts. Journal of Housing Economics 19 (3) : 205-218. ScholarBank@NUS Repository. https://doi.org/10.1016/j.jhe.2010.06.001
Abstract: This study examines total, market and idiosyncratic risk and correlation dynamics using weekly return data on two US REIT firm samples from 1988 to 2008. We find that both market and idiosyncratic variance are time-varying and that idiosyncratic variance represents a dominant component of a REIT firm's total variance. We find a decline in idiosyncratic risk as well as a rise in average REIT correlation during the new REIT era, from 1993 to 2008. This recent downward trend of idiosyncratic risk among REITs is different to the stylized upward trend of idiosyncratic risk among stocks. There is bi-lateral Granger causality between the market and idiosyncratic risks. Finally, we detect a positive relationship between the idiosyncratic risk and expected returns, implying that the risk premium of REITs is positively related to the idiosyncratic risk during the period new REIT era, 1993-2008. Our results have important asset-pricing implications for under-diversified investors. © 2010 Elsevier Inc.
Source Title: Journal of Housing Economics
URI: http://scholarbank.nus.edu.sg/handle/10635/46158
ISSN: 10511377
DOI: 10.1016/j.jhe.2010.06.001
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