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 Volume 6, Number 3, 2000 of the Journal of Real Estate Portfolio Management
All articles listed here are available for download in portable document format. |
Asset Allocation in a Downside Risk Framework Tien Foo Sing and Seow Eng Ong The traditional Markowitz portfolio optimization has two serious drawbacks. First, mean-variance portfolio optimization is inadequate when asset returns are skewed. Second, investor risk aversion is ignored. A more efficient measure of risk that focuses only on the deviation below a pre-specified target rate of return is defined in a generalized lower partial moment (LPM) framework. The concepts of LPM and co-LPM, a downside measure of the covariance of return, are extended to Markovitz's model to provide a more efficient and robust optimization process. This article demonstrates that downside risk models can be easily implemented using spreadsheet programs and illustrates how investor risk aversion can be incorporated into a donwside risk asset optimization model.   Return to the top of this web page |
An Investigation of Current Debt Levels of Equity REITs Peter H. Oppenheimer This study investigates the current debt levels of equity real estate investment trusts (EREITs) and the ability of these companies to meet their interest and dividend payments. Critical financial ratios for the aggregate industry show that EREIT debt levels have consistently fallen since the recession of the early 1990s. In addition, lower debt levels and improved cash flows have reduced the risk of default as indicated by increasing debt coverage levels. However, this trend significantly reversed in 1998 when the industry experienced sharp increases in debt and reductions in interest coverage ratios. Return to the top of this web page |
Real Estate Mutual Funds: Abnormal Performance and Fund Characteristics Edward S. O'Neal and Daniel E. Page The assets in real estate mutual funds have increased by a factor of thirty-eight over the past eight years. This rate of growth of outstrips equity and bond mutual funds over the same period. Given the growing popularity of mutual funds as a way to invest in real estate, questions arise about the performance that these funds provide relative to real estate index portfolios. In this study, we measure the abnormal returns over the three-year period 1996-98 for a sample of twenty-eight real estate mutual funds. We find that, as a group, real estate mutual funds do not deliver positive abnormal performance and that expense ratios, turnover and fund age are all correlated with fund performance. Return to the top of this web page |
Retail Vacancy Rates: The Influence of National and Local Economic Conditions John D. Benjamin, G. Donald Jud, and Daniel T. Winkler This study examines the extent to which local retail vacancy rates are influenced by vacancy rates in surrounding communities versus the overall national vacancy rate in the real estate retail sector. Consistent with prior research, our simultaneous spatial autoregressive analyzes of pooled retail market vacancy rates suggests that there is considerable spatial correlation in vacancy rates among neighboring metropolitan areas. There is also evidence of substantial temporal correlation in local vacancy rates. While spatial correlation dominates the national vacancy rate in explaining variation in the level of vacancy rates, changes in the national vacancy rate explain a statistically significant portion of the variation in the changes in local vacancy rates. The nature and extent to which changes in national rates affect local rate is found to differ markedly across MSAs. Return to the top of this web page |
Causality in Real Estate Markets: The Case of Hong Kong Ling T. He and James R. Webb This study examines the causal price/rental relationships between the residential and the commercial real estate markets (office buildings, retail stores and industrial properties) in Hong Kong. Contemporary causalities between residential and the three types of commercial properties are found. The results indicate that the residential and commercial real estate markets have similar responses to some important economic and political news. In contrast to the common view that large transactions of
commercial properties are usually leading indicators of change in real estate markets,
evidence about the unidirectional causality from residential prices/rentals to commercial
prices/rentals suggests that the higher frequency of price/rental adjustments for
residential real estate provides more opportunities to reflect the impact of significant
news. However, no unidirectional causality between residential rentals and industrial
rentals is found. This may reflect fundamental differences in lease terms. |
The Day of the Week Effect in Real Estate Investment Trusts H. Swint Friday and Eric J. Higgins This study examines the behavior of real estate investment trust (REIT) returns surrounding the weekend. The results for equity REITs show that similar to equity securities, returns on Monday are positive when returns on Friday are positive and returns on Monday are negative when return on Friday are negative. this same relationship does not hold for mortgage REITs. In addition, a significant first order autocorrelation pattern is observed for all REIT types around the weekend. The study also finds that REIT investors respond more strongly to information contained in the market's previous return rather than that contained in previous REIT returns. This implies that REIT investors may have difficult time processing information about REIT securities and rely heavily on market information to make investment decisions. Return to the top of this web page |
Comparing Univariate Forecasting Techniques in Property Markets Patrick J. Wilson, John Okunew, Craig Ellis, and David M. Higgins This article presents a visual comparison of out-of-sample turning point performance as well as brief comparison of forecast accuracy statistics of spectral analysis against other univariate techniques such as ARIMA modeling and exponential smoothing models are highly comparable with, and generally outperform, the other more complex model structures but only in those property markets when a stable trend is present. However, the article also demonstrates that such models perform poorly in turning point prediction. By way of contrast, the research shows that both the ARIMA and spectral regression modeling processes are capable of predicting turning points in property markets. Return to the top of this web page |
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