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The Riskiness of REITs Surrounding the October 1997 Stock Market Decline

The Journal of Real Estate Finance and Economics

Volume 28, Issue 4, Article 3 (Abstract)

Title:

The Riskiness of REITs Surrounding the October 1997 Stock Market Decline

Author:

John L. Glascock, David Michayluk and Karyn Neuhauser

Abstract:

REITs are viewed as low risk/low return stocks that exhibit defensive stock

characteristics. The stock market decline of October 1997 provides an excellent

opportunity to examine the riskiness of REITs during high levels of market

uncertainty. We find that the decline in REIT stock values was about one-half as

large as the decline of non-REIT stocks. Additionally, market uncertainty on the

event day was shown with an increased bid-ask spread for all stocks. On the

following day when the market decline was partially reversed, the bid-ask spreads

continued to increase for non-REIT stocks, but declined for REIT stocks. This

suggests that REITs, like defensive stocks in general, are less prone to significant

declines during market-wide disturbances. Also, we order stocks based on the

standard deviation measures of risk and show that this risk measure explains the

cross-section of returns for non-REITs but is not valid for REITs.

Keywords:

defensive stocks, REITs, bid-ask spreads, October 1997 Market Decline

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Explicit Tests of Contingent Claims Models of Mortgage Default

The Journal of Real Estate Finance and Economics

Volume 11, Issue 2, Article 1 (Abstract)

Title:

Explicit Tests of Contingent Claims Models of Mortgage Default

Author:

John M. Quigley and Robert Van Order

Abstract:

This paper provides explicit and powerful tests of contingent claims approaches to modeling mortgage default. We investigate

a model of “frictionless” default (i.e., one in which transactions costs, reputation costs, and moving costs play no role) and

analyze its implications-the relationship between equity and default, the timing of default, its dependence upon initial conditions,

and the severity of losses. Absent transactions costs and other market imperfections, economic theory makes well-defined

predictions about these various outcomes. The empirical analysis is based upon two particularly rich bodies of micro data: one

indicating the default and loss experience of all mortgages purchased by the Federal Home Mortgage Corporation (Freddie

Mac), and a large sample of all repeat sales of single family houses whose mortgages were purchased by Freddie Mac since

1976. 

Keywords:

contingent claims, mortgage default, options models

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The Tax-Induced Holding Periods of Real Estate Investors

The Journal of Real Estate Finance and Economics

Volume 8, Issue 1, Article 5 (Abstract)

Title:

The Tax-Induced Holding Periods of Real Estate Investors: Theory and Empirical Evidence

Author:

George W. Gau and Ko Wang 

Abstract:

This article reexamines holding period decisions in real estate investment. It develops and empirically tests a holding period

model recognizing not only taxes but also refinancing and investor-specific determinants. Based on a sample of over 1,000 real

estate transactions with observed holding periods, the results of our tests support the conclusion that investors’ consumption

and investment preferences and prevailing markets interest rates are more important than tax issues in determining the holding

periods of real estate investors. 

Keywords:

Real estate investment, holding period 

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The Journal of Real Estate Finance and Economics

Volume 34, Issue 1, Article 1 (Abstract)

Title:

A Quarterly Transactions-Based Index of Institutional Real Estate Investment Performance and Movements in Supply and Demand

Author:

Jeff Fisher, David Geltner and Henry Pollakowski

Abstract:

This article presents a methodology for producing a quarterly transactions-based index (TBI) of

property-level investment performance for U.S. institutional real estate. Indices are presented for

investment periodic total returns and capital appreciation (or price-changes) for the major property

types included in the NCREIF Property Index. These indices are based on transaction prices to

avoid appraisal-based sources of index “smoothing” and lagging bias. In addition to producing

variable-liquidity indices, this approach employs the Fisher-Gatzlaff-Geltner-Haurin (REE 2003)

methodology to produce separate indices tracking movements on the demand and supply sides of

the investment market, including a “constant-liquidity” (demand side) index. Extensions of

Bayesian noise filtering techniques developed by Gatzlaff & Geltner (REF 1998) and Geltner &

Goetzmann (JREFE 2000) are employed to allow development of quarterly frequency, market

segment specific indices. The hedonic price model used in the indices is based on an extension of

the Clapp & Giacotto (JASA 1992) “assessed value method”, using a NCREIF-reported recent

appraised value of each transacting property as the composite “hedonic” variable, thus allowing

time-dummy coefficients to represent the difference each period between the (lagged) appraisals

and the transaction prices. The index could also be used to produce a mass appraisal of the

NCREIF property database each quarter, a byproduct of which would be the ability to provide

transactions price based “atuomated valuation model” estimates of property value for each NCREIF

property each quarter. Detailed results are available at http://web.mit.edu/cre/research/credl.tbi.html.

Keywords: