The Real Estate Investment Funds Listed on the Stock Exchange and The Variables That Influence Their Returns
Name: KAREN YUKARI YOKOYAMA
Publication date: 21/11/2014
Advisor:
Name |
Role |
|---|---|
| ALFREDO SARLO NETO | Advisor * |
Examining board:
| Name |
Role |
|---|---|
| ALFREDO SARLO NETO | Advisor * |
| CLÁUDIO MÁRCIO PEREIRA DA CUNHA | Internal Alternate * |
Summary: YOKOYAMA, K.Y. The Real Estate Investment Trust Listed on the Stock Exchange and the Variables that Affect their Returns. 2014. 81p. (Master of Accounting Science) - Center
for Law and Economic Sciences, Federal University of Espírito Santo, Vitória, 2014.
The REITs combine features of two markets: the real estate market - main source of REIT
income - and the capital market, environment in which they are traded. The impact of each of
these underlying markets in behavior, performance and risk of this asset class; however, has not
been clearly defined, being one of the major themes under analysis, both in the academic
literature, as in the international funds industry. Given the significant expansion of this
investment alternative in the Brazilian market, the present study focused on variables that
influence the returns of Brazilian real estate funds, considering a sample of funds listed on the
Stock Exchange of São Paulo, during 2008-2013. Following the methodology of Clayton and
Mackinnon (2003), the model explaining Brazilian REIT returns were decomposed into four
main components: three factors of market return (stocks, bonds and and unsecuritized Real
Estate) and idiosyncratic risk. According to descriptive statistics, REITs presented higher return
compared to other markets, except in comparison with real estate market, but with less risk.
Correlation analysis, regression and variance decomposition indicate that the stock market and
the unsecuritized real estate market are generally significant in the model, however; those
variables are responsible for only about 15% of total volatility of FII returns. In light of the
Modern Portfolio Theory, these results indicate that the inclusion of REITs may provide potential
diversifier benefit in a multi-asset portfolio, by increasing the total return of a portfolio consisting
of stocks and bonds, without an increase in risk; or keeping the return of this portfolio, with
reduced volatility, thereby broadening the efficient frontier of the portfolio. This result put in
question the traditional equilibrium fund of portfolios composed only by stocks and bonds, as
REITs emerges as an alternative investment, and mainly as a unique asset class. However,
analysis of subsamples by type indicates that the diversifier role of real estate funds is tied to
property focus, since the explanatory factors and their impact on returns differ from one type of
REIT to another. This outcome has important implications for the selection criteria to be adopted by optimal investors and also real estate fund managers regarding product formatting and management. We also conclude that Brazilian REIT returns, in a way, reflect its hybrid condition, but in the other hand the model decomposed into four components is not sufficient to explain
their total returns, since the extended model showed that other variables, including other market parameters than returns, as well macroeconomic variables and firm specifics (eg. market-to-book, size) may be responsible for considerable part of the variance of their returns.
