Year Published
2008
Abstract
REIT is an important but complex financial innovation. The next decade is likely to see the
emergence and fast development of REITs market in China. The development of a sound
legal and regulatory infrastructure is a critical first step. Obviously, the lessons in the 48 years
development of the U.S. REITs market provide a great reference for the latecomers. In
particular, the 1993 Revenue Reconciliation Act is the most important milestone for REITs
history. The study uses a multi-factor risk-based model to evaluate the evolvement of REITs
returns behavior before and after the 1993 Act. This model decomposes REITs excess returns
into risk premiums of three stock market factors, two bond market factors and one real estate
market factor. The results show that this framework is more appropriate in explaining the
expected excess return of REITs. This study reveals that the REITs are less stocklike and
bondlike, but maybe more real-estate-like after 1993, which is in contrast to the findings of
most existing studies. This result indicates that the REITs could provide efficient risk
diversification for the stock market and bond market after 1993. This study also documents
that the performance of excess REITs returns in post-1993 period outpace that in pre-1993
period in general due to the increase of institutional ownership. In the last part, this paper
attempts to provide some legal implications for the development of China’s emerging REITs
market.
emergence and fast development of REITs market in China. The development of a sound
legal and regulatory infrastructure is a critical first step. Obviously, the lessons in the 48 years
development of the U.S. REITs market provide a great reference for the latecomers. In
particular, the 1993 Revenue Reconciliation Act is the most important milestone for REITs
history. The study uses a multi-factor risk-based model to evaluate the evolvement of REITs
returns behavior before and after the 1993 Act. This model decomposes REITs excess returns
into risk premiums of three stock market factors, two bond market factors and one real estate
market factor. The results show that this framework is more appropriate in explaining the
expected excess return of REITs. This study reveals that the REITs are less stocklike and
bondlike, but maybe more real-estate-like after 1993, which is in contrast to the findings of
most existing studies. This result indicates that the REITs could provide efficient risk
diversification for the stock market and bond market after 1993. This study also documents
that the performance of excess REITs returns in post-1993 period outpace that in pre-1993
period in general due to the increase of institutional ownership. In the last part, this paper
attempts to provide some legal implications for the development of China’s emerging REITs
market.
Research Category