Asymmetric Risk Measures and Real Estate Returns

Rational investors distinguish between extremely high and extremely low returns. The measures of investment risk should reflect such asymmetric risk perception. This study presents six asymmetric risk metrics and empirically tests their abilities in explaining the cross-sectional variations of real estate returns. It finds strong evidence that systematic downside risk is associated with a risk premium, and skewness provides significant explanatory power to the variation of cross-sectional property returns. On the other hand, co-skewness does not explain real estate returns well and is not a good systematic risk measure.     

Hedge Fund Regulation and Misreported Returns

This paper introduces a cross‐country law and finance analysis of the misreporting behaviour in the hedge fund industry in terms of smoothing returns so that a fund consistently generates positive returns. We find strong evidence that international differences in hedge fund regulation are significantly associated with the propensity of fund managers to misreport monthly returns. We find a positive association between wrappers and misreporting, particularly for funds that do not have a lockup provision. Also, we find some evidence that misreporting is less common among funds in jurisdictions with minimum capitalisation requirements and restrictions on the location of key service providers. We assess the robustness of our finds to a number of specifications, including, different specifications of misreporting bin widths, subsets of the data by fund type, as well as specifications controlling for collinearity and selection effects and other robustness checks. We show misreporting significantly affects capital allocation, and calculate the wealth transfer effects of misreporting and relate this wealth transfer to differences in hedge fund regulation.     

Economic Risk Factors and Commercial Real Estate Returns

A great deal of research has focused on the links between stock and bond market returns and macroeconomic events such as fluctuations in interest rates, inflation rates, and industrial production. Although the comovements of real estate and other asset prices suggests that these same systematic risk factors are likely to be priced in real estate markets, no study has formally addressed this issue. This study identifies the growth rate in real per capita consumption, the real T-bill rate, the term structure of interest rates, and unexpected inflation as fundamental drivers or state variables that systematically affect real estate returns. The finding of a consistently significant risk premium on consumption has important ramifications for the vast literature that has examined the (risk-adjusted) performance of real estate, for it suggests that prior findings of significant abnormal returns (either positive or negative) that have ignored consumption are potentially biased by an omitted variables problem. The results also have important implications for dynamic asset allocation strategies that involve the predictability of real estate returns using economic data.     

Capacity Constraints and Hedge Fund Strategy Returns

Hedge funds have generated significant absolute returns (alpha) in the decade between 1995 and 2004. However, the level of alpha has declined substantially over this period. We investigate whether capacity constraints at the level of hedge fund strategies have been responsible for this decline. For four out of eight hedge fund strategies, capital inflows have statistically preceded negative movements in alpha, consistent with this hypothesis. We also find evidence that hedge fund fees have increased over the same period. Our results provide support for the Berk and Green (2004) rational model of active portfolio management.     

Failure Risk and the Cross‐Section of Hedge Fund Returns

Modeling a hedge fund's probability of failure with a dynamic logit regression, I find that the probability of a fund's failure has a significantly negative effect on the fund's future returns. A quintile portfolio with the highest failure probability underperforms a quintile portfolio with the lowest failure probability by 5% to 6% per year from 1997 to 2012. The results are robust to the definition of hedge fund failure and controlling for a large set of risk factors and fund characteristics. Moreover, the negative effect of failure probability on future fund returns is stronger for funds with weak share restrictions.     

The Variation of Economic Risk Premiums in Real Estate Returns

We examine the predictable components of returns on stocks, bonds, and real estate investment trusts (REITs). We employ a multiple-beta asset pricing model and find that there are varying degrees of predictability among stocks, bonds, and REITs. Furthermore, we find that most of the predictability of returns is associated with the economic variables employed in the asset pricing model. The stock market risk premium is highly important in capturing the predictable variation in stock portfolios, and the bond market risk premiums (term and risk structure of interest rates) are important in capturing the predictable variation in bond portfolios. For REITs, however, both the stock and bond market risk premiums capture the predictable variation in returns. REITs have comparable return predictability to stock portfolios. We conclude that there is an important economic risk premium for REITs that are not captured by traditional multiple-beta asset pricing models.     

Emerging Market Exposures and the Predictability of Hedge Fund Returns

We examine emerging market and global macro hedge funds and find a significant positive relation between hedge funds’ future returns and their exposure to both emerging market equities and emerging market currencies. We present evidence that the strong predictive power of emerging market betas is related to the superior market‐timing ability of these fund managers. Results are robust after controlling for commonly used hedge fund factors, the emerging market equity index, lagged fund returns, liquidity risk, and fund characteristics. Our results suggest that hedge funds can earn positive excess returns by timing their exposure to emerging market securities.     

对冲基金投资收益与风险理论文献综述

另类投资领域中的对冲基金研究对于中国正在兴起的私募基金具有重要的理论和现实意义.本文系统回顾了对冲基金投资收益与风险研究的文献内容,收益的定价方法、收益数据的偏差研究、风险的估测方法、风险测量的不足、对冲基金对金融市场的稳定性影响等,研究发现对冲基金的风险未被正确认识而收益表现被高估.这为全面认识对冲基金的收益风险特征提供了理论基础.     

A Theoretical Analysis of Real Estate Returns

In this paper, we consider two hypotheses for the recent performance of real estate returns. The first is the random event argument that real estate is positively correlated with unanticipated inflation but that structural change in expected returns due to a change in the perceived sensitivity of returns to unanticipated inflation has not taken place. The second is the hedge demand argument that formulates the structural shift hypothesis. The paucity of real estate and other expectations data as well as the general identification problem make it extremely difficult to distinguish between these hypothesis. Our tests consist of estimates of inflation betas for various asset categories overtime as well as estimates of the hedge vector, $S^{-1}C$. Although some support for the hedge argument is found, the results are not strong enough to reject the random event argument and conclude that a decline in the required return on real estate due to a relative increase in inflation beta drove returns during the 1970's.     

Asymmetric Information and the Predictability of Real Estate Returns

This article examines the relation between systematic price changes and the heterogeneity of investors information sets in real estate asset markets. The empirical implications rely on a theoretical economy in which information asymmetry alters the dynamic relation between returns and trading volume. We employ a filter-rule methodology to determine predictability in returns and augment the return-based conditioning set with trading volume. The additional conditioning information is necessary since the model is underspecified when predictability is based on returns alone. Our results provide new insight into the coexistence of informational and noninformational exchange in the speculative markets for real estate assets. Specifically, we find that the predictability of real estate returns is generally more indicative of portfolio rebalancing effects than an adverse-selection problem. These results are unique in addressing the time-variation in information asymmetry.     

Volatilities and Momentum Returns in Real Estate Investment Trusts

We examine the relation of time-varying idiosyncratic risk and momentum returns in REITs using a GARCH-in-mean model and incorporate liquidity risk in the asset pricing model. This is important because illiquidity may be more severe for REITs due to the nature of their underlying assets. We find that momentum returns display asymmetric volatility, i.e., momentum returns are higher when volatility is higher. Additionally, we find evidence that REITs with lowest past returns (losers) have higher idiosyncratic risks than those with highest past returns (winners) and that investors require a lower risk premium for holding losers’ idiosyncratic risks. Therefore, although losers have higher levels of idiosyncratic risks, their low risk premia cause low returns, which contribute to momentum. Lastly, we find a positive relation between REITs’ momentum return and turnover.     

房产困局中的金融风险

当前,中央政府和社会舆论对房地产市场是否存在泡沫、以及房地产开发投资持续增长是否会激化泡沫异常关注,因为这涉及到国家经济安全和金融安全问题.本文将从分析中国目前房地产市场特征出发,重点探讨可能对房地产金融带来的影响及可能的风险防范措施.     

Recovery of Real Estate Returns for Portfolio Allocation

Appraisal-based return indexes may not approximate the true real estate return distributions because of understated return volatility. Recovery of returns from reported, appraisal-based returns may be possible by evoking models to correct for appraisal-based smoothing of the second moment. Because recovery intentionally alters the volatility of the reported return distribution and the correlations among assets in the portfolio, the weights to real estate are likely affected. Our examination of the portfolio implications of altering the return distribution indicates that weights may be quite sensitive to the effects of recovery across a reasonable range of correlation regimes. A comparative analysis of several recovery models reveals that all models achieve the objective of inflating the volatility of reported returns. However, the models also change the mean of the return distribution, which either counteracts or magnifies the effect of the volatility change on allocations. These findings bring into question the applicability of recovery models in their current form.     

Alpha and Persistence in Real Estate Fund Performance

This paper investigates whether fund managers investing in the direct real estate market can systematically and persistently deliver superior risk-adjusted returns. The research that has been published has typically focused on the performance of managers trading public real estate securities. Our study draws on a unique data set of commercial real estate funds collated by the Investment Property Databank (IPD) in the United Kingdom, covering up to 280 funds over the period 1981 to 2006. The widespread finding is that very few managers appear to be able to generate excess risk-adjusted returns. Furthermore, there is little evidence of performance persistence in either fund returns or risk-adjusted fund returns.     

Real Estate Fund Flows and the Flow-Performance Relationship

Convexity in the flow-performance relationship of traditional asset class mutual funds is widely documented, however it cannot be assumed to hold for alternative asset classes. This paper addresses this shortcoming in the literature by examining the flow-performance relationship for real estate funds, specifically open-end, direct-property funds. This investment vehicle is designed to provide the risk-return benefits of private market real estate and is available to retail investors in many countries across the globe. An understanding of fund flow dynamics associated with this investment vehicle is of particular interest due to the liquidity risk associated with holding an inherently illiquid asset in an open-end structure. Our analysis draws on the theoretical foundations provided in the literature on mutual fund flows, performance chasing, liquidity risk, participation costs and dynamics across market cycles. We focus on German real estate funds from 1990 to 2010 as this is the largest market globally and there is a high level of confidence in the data. The results show that real estate fund investors chase past performance at the aggregate level and the relationship between flows and relative performance is asymmetric (i.e., convex) at the individual fund level. Fund-level liquidity risk tends to weaken convexity, while sensitivity increases with higher participation costs. We find the flow-performance relationship varies across time, though our interpretation is asset and investment vehicle specific. The implications are applicable to investors and fund managers of open-end, direct-property funds and, more broadly, other alternative asset funds where the underlying asset may not be liquid.     

Real Estate Risk Exposure of Equity Real Estate Investment Trusts

This study examines the linkage between equity real estate investment trust (REIT) returns and the private real estate factor. The results reveal a tighter connection between REIT and the private real estate market starting from 1993. In addition, large-cap REITs seem to behave more like real estate than do small-cap REITs. Overall, the results are consistent with three notions: (1) that institutional investors provide information-gathering services (Bradrinath et al., Rev. Financ. Stud., 8:401–430, 1995), (2) that a more sophisticated investor base improves information flow, and (3) that a high degree of participation from institutional investors strengthens the linkage between REIT returns and the underlying real estate factor (Ziering et al., The evolution of public and private market investing in the new real estate capital markets, Prudential Real Estate Investors, Parsippany, NJ, 1997).

Hedge Fund Risk Dynamics: Implications for Performance Appraisal

Accurate appraisal of hedge fund performance must recognize the freedom with which managers shift asset classes, strategies, and leverage in response to changing market conditions and arbitrage opportunities. The standard measure of performance is the abnormal return defined by a hedge fund's exposure to risk factors. If exposures are assumed constant when, in fact, they vary through time, estimated abnormal returns may be incorrect. We employ an optimal changepoint regression that allows risk exposures to shift, and illustrate the impact on performance appraisal using a sample of live and dead funds during the period January 1994 through December 2005.     

The Global Determinants of Direct Office Real Estate Returns

We investigate the determinants of direct office real estate returns by analyzing rents, capital appraisals, and total returns. A recently compiled global database of major cities in Asia, Europe, and the United States provides a unique opportunity to give a macro-view on the effects of economic growth and supply and demand factors on nominal real estate returns. The global database provides quarterly observations from 1986 to 1999. To address the smoothness problem of appraisal-based price data and regulated rents, we employ the Generalized Method of Moments to estimate a dynamic panel-data model. The model allows us to combine the cross-sectional and time-series dimension in our quarterly data. We find that gross domestic product, inflation, unemployment, vacancy rate, and the available stock all have an effect on real estate returns.     

The Early Returns to International Hedge Fund Activism: 2000–2010

In this summary of their recent article in the Review of Financial Studies, the authors provide an overview of the methods and findings of the first comprehensive study of worldwide hedge fund activism—one that examined the effectiveness of some 1,740 separate “engagements” of public companies by 330 different hedge funds operating in 23 countries in Asia, Europe, and North America during the period 2000‐2010. The study reports, first of all, that the incidence of shareholder activism is greatest in companies and countries with high institutional ownership, particularly U.S. institutions. In virtually all countries, with the possible exception of Japan, large holdings by institutional investors increased the probability that companies would be targeted by activists. Nevertheless, in all countries (except for the United States), foreign institutions—especially U.S. funds investing in non‐U.S. companies—have played a more important role than domestic institutional investors in supporting activism. The authors also report that those engagements that succeeded in producing “outcomes” were accompanied by positive and significant abnormal stock returns, not only upon the announcement of the activist's block purchase, but throughout the entire holding period. “Outcomes” were identified as taking one of four forms: (1) increases in dividends or stock buybacks; (2) replacement of board members; (3) corporate restructurings such as sales or spinoffs of businesses; and (4) takeover (or sale) of the entire company. But if such outcomes were associated with high shareholder returns, in the many cases where there were no such outcomes, the eventual, holding‐period returns to shareholders, even after taking account of the initially positive market reaction to news of the engagement, were indistinguishable from zero. The authors found that activists succeeded in achieving at least one of their proposed outcomes in roughly one out of two (53%) of the 1,740 engagements. But this success rate varied considerably across countries, ranging from a high of 61% for North American companies, to 50% for European companies, but only 18% engagements of Asian companies—with Japan, again, a country of high disclosure returns but unfulfilled expectations and disappointing outcomes. Outcomes also tended to be strongly associated with the roughly 25% of the total engagements that involved two or more activists (referred to as “wolfpacks”) and produced very high returns.