The Cross Section of Expected Real Estate Returns: Insights from Investment-Based Asset Pricing

Posted: 3 Nov 2017

See all articles by Shaun A. Bond

Shaun A. Bond

UQ Business School

Chen Xue

University of Cincinnati

Multiple version iconThere are 2 versions of this paper

Date Written: April 1, 2017

Abstract

Motivated by investment-based asset pricing, we show that two firm fundamentals, investment and profitability, have substantial predictive power for REIT returns. The return predictability of investment and profitability is not subsumed by conventional models and can be useful for understanding the cross section of expected REIT returns. To illustrate, we construct an investment-based factor model for REITs that consists of a market factor, an investment factor, and a profitability factor. The investment-based model outperforms conventional models in capturing well-known cross-sectional patterns in REIT returns. Our findings suggest that incorporating investment-based asset pricing can be a promising direction for future real estate finance research.

Keywords: REITs, Asset pricing

Suggested Citation

Bond, Shaun Alexander and Xue, Chen, The Cross Section of Expected Real Estate Returns: Insights from Investment-Based Asset Pricing (April 1, 2017). Journal of Real Estate Finance and Economics, Vol. 54, No. 3, 2017, University of Cincinnati Lindner College of Business Research Paper , Available at SSRN: https://ssrn.com/abstract=3063529

Shaun Alexander Bond (Contact Author)

UQ Business School ( email )

The University of Queensland
Brisbane, QLD 4072
Australia

Chen Xue

University of Cincinnati ( email )

College of Business Administration
Cincinnati, OH 45221
United States
(513) 556-7078 (Phone)

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