What Factors Determine International Real Estate Security Returns?

Foort Hamelink Lombard Odier Darier Hentsch - Banquiers Privis; Free University of AmsterdamMartin Hoesli University of Geneva - Graduate School of Business (HEC-Geneva); University of Aberdeen - Business School; Swiss Finance InstituteJuly 2002FAME Research Paper No. 50 Abstract: In this paper, we use constrained cross-section regressions to disentangle the effects of various factors on real estate security returns in 21 countries. A better knowledge of the risk factors driving real estate returns is crucial, whether a pure real estate portfolio is constructed or whether real estate is considered as an alternative asset class within the traditional stock portfolio. Besides a common factor, 'pure' country, size, and value/growth factors are considered. The value/growth measure that is used in this paper is a unique indicator developed by Salomon Smith Barney (SSB). It provides for each stock the relative importance of the value and growth components, rather than using a binary classification. The value/growth factor is found to have a substantial and increasing effect on returns over the analyzed period February 1990-April 2002. Country factors are important determinants of real estate security returns also. Statistical analysis of the residuals indicates that additional 'hidden' factors most likely exist. These statistical factors are shown to explain about one third of specific returns on international real estate securities. Nevertheless, as is the case for traditional stock portfolios, stock picking keeps all its importance for real estate stocks as well.
Keywords: securitized real estate, international diversification, multi-factor model, value/growth
JEL Classifications: C21, G11, G15
Working Paper Series
Date posted: May 06, 2003 ; Last revised: May 06, 2003
Suggested Citation
Hamelink, Foort and Hoesli, Martin,What Factors Determine International Real Estate Security Returns?(July 2002). FAME Research Paper No. 50.
Available at SSRN: http://ssrn.com/abstract=372041 or DOI: 10.2139/ssrn.10.2139/ssrn.372041
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Contact Information
Martin Edward Ralph Hoesli (Contact Author)
University of Geneva - Graduate School of Business (HEC-Geneva) ( email )
40 Boulevard du Pont d'Arve1211 Geneva 4 Switzerland+41 22 379 8122 (Phone)+41 22 379 8104 (Fax)
University of Aberdeen - Business School ( email )
Edward Wright BuildingDunbar StreetAberdeen, Scotland United Kingdom+41 22 379 8122 (Phone)+41 22 379 8104 (Fax)
Swiss Finance Institute ( email )
c/o University of Geneve40, Bd du Pont-d'ArveGeneva 1205Switzerland

Foort Hamelink
Lombard Odier Darier Hentsch - Banquiers Privis ( email )
11 rue de la Corraterie1204 Geneva Switzerland+41-22-7092178 (Phone)HOME PAGE: http://www.hamelink.com
Free University of Amsterdam ( email )
De Boelelaan 11051081 HV Amsterdam Netherlands+41-22-7092178 (Phone)HOME PAGE: http://www.hamelink.com

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