Please use this identifier to cite or link to this item: https://scholarbank.nus.edu.sg/handle/10635/220020
Title: THE EFFECTS OF GEOGRAPHICAL DIVERSIFICATION ON US EQUITY REITS
Authors: WOON BAO SHENG
Keywords: Real Estate
RE
Chow Yuen Leng
2013/2014 RE
Abnormal returns
Four factor model
REITs geographical diversification
Issue Date: 27-Jun-2014
Citation: WOON BAO SHENG (2014-06-27). THE EFFECTS OF GEOGRAPHICAL DIVERSIFICATION ON US EQUITY REITS. ScholarBank@NUS Repository.
Abstract: The dilemma surrounding diversification as a mean to reduce both market risk and security risk while enhancing returns has been much debated about in the corporate world. Findings have shown that diversification does indeed reduce volatility, maximum loss and increases a firm’s performance and valuation. One of its major upside is that geographical diversification provides a buffer across different countries since these investments run on a different economy cycle. However, other literatures also proved that diversification increases the expenses incurred to the firms, thus decreasing the returns a company can generate. This study examines the effect of geographical diversification on the raw returns and abnormal returns on the US equity Real Estate Investment Trusts (REITs). The key objective in this paper is to determine if the portfolio of geographically specialized REITs can produce superior returns than the geographically diversified REITs. We compare their performance across the time period of 2000 Quarter 1 to 2012 Quarter 4 using both the Capital Asset Pricing Model (CAPM) and the Carhart four factor model which includes momentum to retrieve the Jensen’s alpha. This paper shows the diversified REITs managed to outperform the specialized REITs by a small margin (by managing to reduce their loss over the time period by a greater extent as both portfolios yielded a negative Jensen’s alpha), although the difference is not statistically significant.
URI: https://scholarbank.nus.edu.sg/handle/10635/220020
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