Applying the Fama and French three-factor model to analyze risk/reward in the Spanish REITs: an ARDL approach
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Title: | Applying the Fama and French three-factor model to analyze risk/reward in the Spanish REITs: an ARDL approach |
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Authors: | Su, Zhenyu | Taltavull de La Paz, Paloma |
Research Group/s: | Economía de la Vivienda y Sector Inmobiliario (ECOVISI) |
Center, Department or Service: | Universidad de Alicante. Departamento de Análisis Económico Aplicado |
Keywords: | Spain | CAPM | Carhart model | Fama and French model | Real estate investment trusts (REITs) | Sociedades cotizadas de inversión en el mercado inmobiliario (SOCIMIs) | Capital asset pricing model (CAPM) | Fama-French three-factor (FF3) model | Risk and returns | Autoregressive distributed lag (ARDL) |
Knowledge Area: | Economía Aplicada |
Issue Date: | 10-Jun-2021 |
Publisher: | Emerald |
Citation: | Journal of European Real Estate Research. 2021, 14(2): 189-208. https://doi.org/10.1108/JERER-11-2019-0043 |
Abstract: | Purpose – This paper aims to analyse the risk and excess returns of the Spanish real estate investment trusts (S-REITs) using various methods, though focusing primarily on the Fama-French three-factor (FF3) model, over the period from 2007Q3 to 2017Q2. Design/methodology/approach – The autoregressive distributed lag model is used for the empirical analysis to test long-term stable relationships between variables. Findings – The findings indicate that the FF3 model is suitable for the S-REITs market, better explaining the S-REITs’ returns variation than the traditional single-index capital asset pricing model (CAPM) and the Carhart four-factor model. The empirical evidence is reasonably consistent with the FF3 model; the values for the market, size and value are highly statistically significant over the analysis period, with 68.7% variation in S-REITs’ returns explained by the model. In the long run, the market factor has less explanatory power than the size and value factors; the positive long-term multiplier of the size factor indicates that small S-REIT companies have higher returns, along with higher risk, while the negative multiplier of the value indicator suggests that S-REITs portfolios prefer to allocate growth REITs with low book-to-market ratios. The empirical findings from a modified FF3 model, which additionally incorporates Spain’s gross domestic product (GDP) growth rate, two consumer price index (CPI) macro-factors and three dummy variables, indicates that GDP growth rate and CPI also affect S-REITs’ yields, while investment funds with capital calls have a small influence on S-REITs’ returns. Practical implications – The regression results of the standard and extended FF3 model can help researchers understand S-REITs’ risk and return through a general stock pattern. Potential investors are given more information to consider the new Spanish investment vehicle before making a decision. Originality/value – The paper uses standard techniques but applies them for the first time to the S-REIT market. |
URI: | http://hdl.handle.net/10045/117471 |
ISSN: | 1753-9269 |
DOI: | 10.1108/JERER-11-2019-0043 |
Language: | eng |
Type: | info:eu-repo/semantics/article |
Rights: | © Emerald Publishing Limited |
Peer Review: | si |
Publisher version: | https://doi.org/10.1108/JERER-11-2019-0043 |
Appears in Collections: | INV - ECOVISI - Artículos de Revistas |
Files in This Item:
File | Description | Size | Format | |
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Su_Taltavull_2021_JEurRealEstateRes_final.pdf | Versión final (acceso restringido) | 224,2 kB | Adobe PDF | Open Request a copy |
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