What Does the Stock Market Tell Us About Real Estate Returns?

This paper analyzes the risks and returns of different types of real estate-related firms traded on the New York and American stock exchanges (NYSE and AMEX). We examine the relation between real estate stock portfolio returns and returns on a standard appraisal-based index, and find that lagged values of traded real estate portfolio returns can predict returns on the appraisal-based index after controlling for persistence in the appraisal series. The stock market reflects information about real estate markets that is later imbedded in infrequent property appraisals. Additional analysis suggests that the differences in the return and risk characteristics across different types of traded real estate firms can be explained in part by appealing to real estate market fundamentals relating to the degree of dependence of the real estate firm upon rental cash flows from existing buildings. These findings highlight the heterogeneity of securitized real estate-related firms.     

The Impact of Industrial Design Effectiveness on Corporate Financial Performance*

Despite the growing recognition of industrial design's value in creating sustainable competitive advantage, few studies have attempted to quantify the contribution that design makes to company financial performance. This article examines the relationship between industrial design and company financial performance in order to assess industrial design's contribution to this performance. Effective industrial design was evaluated by asking a panel of 138 industrial design experts to rank the industrial design effectiveness of publicly traded firms within nine selected manufacturing industries; the ranking process yielded 93 firms. Based on the rankings, firms within each industry were divided into two groups: those judged as exhibiting high design effectiveness versus those judged as low in design effectiveness. Audited financial data reported to the SEC across a seven‐year period from 1995 to 2001 were used to evaluate financial performance. Using traditional financial ratios senior managers consider essential performance measures, those firms with high design effectiveness were hypothesized to have higher returns on sales, returns on assets, and growth rates of sales, net income, and cash flow than firms with low design effectiveness. High design effectiveness firms further were hypothesized to have higher stock market returns. These comprehensive, corporate financial measures incorporate expenditures made on industrial design (industrial designers' salaries, design consultants' fees, computer‐aided industrial design equipment) and expenditures that designers influence through their design choices (material costs, manufacturing equipment). This analysis reveals that firms rated as having “good” design were stronger on all measures except growth rate measures. These results provide strong evidence that good industrial design is related to corporate financial performance and stock market performance even after considering expenditures on industrial design. Further, the patterns of financial performance over the seven‐year horizon suggest that these effects are persistent.     

The Integration of Commercial Real Estate Markets and Stock Markets

This paper tests whether commercial real estate markets (both exchange-traded and non-exchange-traded) are integrated with stock markets using multifactor asset pricing models. The results support the hypothesis that the market for exchange-traded real estate companies, including REITs, is integrated with the market for exchange-traded (non-real-estate) stocks. Moreover, the degree of integration has significantly increased during the 1990s. However, when appraisal-based returns (adjusted for smoothing) are used to construct real estate portfolio returns, the results fail to support the integration hypothesis, although this may reflect the inability of these estimated private market returns to accurately proxy for commercial real estate returns. Interestingly, the growth rate in real per capita consumption is consistently priced in both commercial real estate markets and stock markets, whereas previous studies have found mixed evidence on the role of consumption in explaining ex ante stock returns.     

基于Logistic回归模型的建材业上市公司财务预警研究

在当前房地产调控政策下,我国建材业上市公司面临着巨大的财务危机。论文对24家建材业上市公司2009年、2008年的财务指标进行了基于Logistic回归模型的财务预警实证分析,并利用上述模型及2010年的财务数据对样本公司2011年的财务状况进行了预测,继而给出了财务风险应对策略,以期我国建材业上市公司能够走出财务困境,走上健康发展的道路。     

Short Sales and Price Discovery in the Hong Kong Real Estate Market

Indirect real estate (IRE) returns are often shown to lead direct real estate (DRE) returns. Apart from differences in liquidity, transaction costs, and management skills, the DRE market is also less complete than the IRE market—when negative shocks arrive, one can only short IRE (e.g., real estate stocks or REITs), but not DRE. This study investigates if short sales in the IRE market convey any information to the DRE market. Based on high‐frequency (weekly) property price data in Hong Kong from 2000 to 2012, we find that short sales in the IRE market led DRE returns, even after controlling for the lagged IRE returns in a VAR model. This supports an information spillover mechanism in which the DRE market learns private information that is not reflected in IRE returns. The spillover effect, however, weakened after the recent global financial crisis because the increased uncertainty over the credibility of individual firms made short sales more reflective of firm‐specific information than real estate market fundamentals.     

International Real Estate Returns: A Multifactor, Multicountry Approach

We examine the risk and return characteristics of publicly traded real estate companies from 14 countries over the period 1990 to 2001. Our data are monthly country-level commercial real estate indexes constructed by the European Public Real Estate Association (EPRA). We find substantial variation in mean real estate returns and standard deviations across countries. Using various global- and country-level factor models, we find that there is evidence of a strong global market risk component, measured relative to the Morgan Stanley Capital International world index, in most countries. However, even after controlling for the effects of global market risk, an orthogonalized country-specific market risk factor is highly significant, especially for real estate indexes in Asia–Pacific markets. We find that a country-specific value risk factor has some explanatory power in addition to the country-specific market factor, but U.S.-based market, value and size risk factors do not provide any additional explanatory power. These findings imply that the international diversification opportunities with real estate companies are more complex than previously thought.     

Risk and Return on Real Estate: Evidence from Equity REITs

We analyze monthly returns on an equally weighted index of eighteen to twenty-three equity (real property) real estate investment trusts (REITs) that were traded on major stock exchanges over the 1973–87 period. We employ a multifactor Arbitrage Pricing Model using prespecified macroeconomic factors. We also test whether equity REIT returns are related to changes in the discount on closed-end stock funds, which seems plausible given the closed-end nature of REITs.
Three factors, and the percentage change in the discount on closed-end stock funds, consistently drive equity REIT returns: unexpected inflation and changes in the risk and term structures of interest rates. The impacts of these variables on equity REIT returns is around 60% of the impacts on corporate stock returns generally. As expected, the impacts are greater for more heavily levered REITs than for less levered REITs. Real estate, at least as measured by the return performance of equity REITs, is less risky than stocks generally, but does not offer a superior risk-adjusted return and is not a hedge against unexpected inflation.     

Value Creation in REIT Property Sell-Offs

We examine major sales of real property by public U.S. Real Estate Investment Trusts (REITs) 1992–2002. We find that abnormal shareholder returns are significantly positive, a result that is consistent with findings for conventional firms that sell off real estate. Because REITs do not pay taxes, this finding supports the view that abnormal returns in real estate sell-offs by all types of firms are derived largely from asset allocation efficiencies and do not result exclusively from tax benefits. Shareholder returns are lower in sell-offs motivated by a desire to reduce long-term debt, as is consistent with financial theory regarding the information content of leverage decisions. Returns are inversely related to the firm's operating performance prior to the sell-off announcement, further supporting the case that improved asset efficiencies create value in real estate sell-offs.     

The impact of corporate social responsibility on investment recommendations: Analysts' perceptions and shifting institutional logics

We explore the impact of corporate social responsibility (CSR) ratings on sell‐side analysts' assessments of firms' future financial performance. We suggest that when analysts perceive CSR as an agency cost they produce pessimistic recommendations for firms with high CSR ratings. Moreover, we theorize that, over time, the emergence of a stakeholder focus shifts the analysts' perceptions of CSR. Using a large sample of publicly traded U.S. firms over 15 years, we confirm that, in the early 1990s, analysts issue more pessimistic recommendations for firms with high CSR ratings. However, analysts progressively assess these firms more optimistically over time. Furthermore, we find that analysts of highest status are the first to shift the relation between CSR ratings and investment recommendation optimism. Copyright © 2014 John Wiley & Sons, Ltd.     

Spinning gold: The financial returns to stakeholder engagement

We provide direct empirical evidence in support of instrumental stakeholder theory's argument that increasing stakeholder support enhances the financial valuation of a firm, holding constant the objective valuation of the physical assets under its control. We undertake this analysis using panel data on 26 gold mines owned by 19 publicly traded firms over the period 1993–2008. We code over 50,000 stakeholder events from media reports to develop an index of the degree of stakeholder conflict/cooperation for these mines. By incorporating this index in a market capitalization analysis, we reduce the discount placed by financial markets on the net present value of the physical assets controlled by these firms from 72 percent to between 37 and 13 percent. Copyright © 2013 John Wiley & Sons, Ltd.     

Gains From Diversifying Into Real Estate: Three Decades of Portfolio Returns Based on the Dynamic Investment Model

This paper compares the investment policies and returns for portfolios of stocks and bonds with and without up to three categories of real estate. Both domestic and global settings are examined, with and without the possibility of leverage. The portfolios were generated via the dynamic investment model based on the empirical probability assessment approach applied to past (joint) realizations of returns, both with and without correction for "smoothing" in the real estate data series. Our principal findings are: (1) the gains from adding real estate, on a semi-passive (equal-weighted) basis, to portfolios of either U.S. or global financial assets were relatively modest; in contrast, (2) the gains from adding real estate to the universe of U.S. financial assets under an active strategy were rather large (in some cases highly statistically significant), especially for the very risk-averse strategies; (3) the gains from adding U.S. real estate to a universe of global financial assets under an active strategy were mixed, although generally favorable for the highly risk-averse strategies; (4) correcting for second-moment smoothing in the real estate returns series had a relatively small impact for the more risk-tolerant strategies; and (5) there was some evidence that desmoothing resulted in improved probability estimates.     

Co‐movements and Correlations Across Asian Securitized Real Estate and Stock Markets

We find conditional real estate‐stock correlations at the local, regional and global levels are time varying and asymmetric in some cases for our sample of eight Asian securitized real estate markets over 1995–2009. Real estate–global stock correlations co‐move significantly and positively with real estate–regional stock correlations and real estate–local stock correlations. They are also influenced significantly by relative (real estate/stock) volatilities and their lags at three integration levels. Furthermore, real estate and stock volatilities, covariances and correlations increased from the preglobal financial crisis period to the crisis period. However, real estate and stock volatility are more important than correlation in causing the changes in covariance during both the precrisis and crisis periods. Finally, exchange rate volatility appears to have played a relatively less important role in these cross real estate–stock correlations.     

Asset Growth and Stock Performance: Evidence from REITs

In this article, we examine the impact of asset growth rates on the future stock performance of 308 publicly traded real estate investment trusts (REITs). We observe that fast‐growing REITs tend to underperform slow growing REITs. However, we find evidence that the growth effect is significantly less negative for REITs selling at a premium to net asset value. In addition, we observe the asset growth effect only in the subsample of REITs that engages in equity issuance over the next 12 months. The combined evidence suggests contemporaneous equity dilution, which has not been considered in previous studies, may provide an explanation for the underperformance of fast‐growing firms.     

万科:降价的背后

在大势不好的情况下,这家国内最大的房地产开发商正在为了将来而战。9月底,位于北京丰台区小屯路的万科中粮假日风景(紫苑)推出了10套特价房,每套单价仅为11000元左右,而此前同样户型的单价约在14000元左右,相当于打了8折。不久前,记者的手机也收到了位于北京顺义区的万科四季花城的促销短信,部分特价房起价仅为6800元,较之此前7500元的价格也打了9折。     

Another Take on Real Estate's Role in Mixed‐Asset Portfolio Allocations

This article examines real estate's role in institutional mixed‐asset portfolios using both private‐ and public‐real estate indices, as a means of examining varying real estate‐related risk/return opportunities. In so doing, this article also examines the effects of: (1) increasing the investment horizon, (2) placing constraints on the maximum allocation to any one asset class, and (3) varying the risk preferences of investors. The empirical results suggest—using infinite‐horizon returns and all of the caveats that accompany such a perspective—that real estate allocations of approximately 10–15% of the mixed‐asset portfolio represent an upper bound for most investors. For those investors preferring low‐risk portfolios, (unlevered) private real estate is the vehicle serving this allocation preference; for those investors preferring high‐risk portfolios, public real estate (with its embedded leverage of 40–50%) is the vehicle serving this allocation preference—with such vehicles serving as substitutes for a variety of noncore real estate strategies. In some sense, the distinction between private and public real estate is more about the use of leverage. For those investors preferring moderate‐risk portfolios, an intermediate‐leverage approach seems optimal.     

Debt Capacity of Real Estate Collateral

We study whether real estate assets have a greater positive influence on firm leverage than other tangible assets. Using a large sample of COMPUSTAT firms, we find a significant positive relation between tangibility and leverage in general, and the relation is strongest for real estate collateral. Furthermore, we find that the relation holds only for credit‐constrained firms, i.e., those likely to highly value the additional borrowing capacity of real estate. Our results imply that knowing the composition of a firm's tangible assets is important in understanding its leverage. Our findings could help explain why real estate investment trusts are relatively highly leveraged, even though debt offers them no tax benefit.     

Stock market reaction to CEO certification: the signaling role of CEO background

As a direct result of the corporate scandals that started with Enron and led to general unrest in the financial markets, the Securities and Exchange Commission required chief executive officers (CEOs) and chief financial officers of large publicly traded companies to certify their financial statements. Using market signaling theory, we propose that attributes of the CEO send important signals to the investment community as to the credibility of the CEO certification and thus the quality of the firm's financial statements, which in turn impact the stock market reaction to the CEO certification. We find that a CEO's shareholdings and external directorships are positively related to the abnormal returns of CEO certification. Further, the stock market penalizes a firm with a CEO who is associated with the firm's prior financial restatement and rewards a firm with a CEO who is appointed after the firm's prior financial restatement. Copyright © 2009 John Wiley & Sons, Ltd.     

The Separation of Real Estate Operations By Spin-Off

In this paper, we consider spin-offs as a vehicle to separate real estate operations from other real estate and/or non-real estate operations. For a sample of 33 such spin-offs announced and completed between 1962 and 1982, we document significantly positive abnormal returns around spin-off announcements. Using the standard event-time methodology, we find average excess returns of 5.7% in the two-day interval surrounding the first Wall Street Journal report of a pending spin-off. While the gains associated with spin-offs by real estate firms are positive on average, they are small in comparison to the 9.1% two-day announcement period abnormal returns surrounding proposals by non-real estate firms to divest real estate operations.     

The Predictability of International Real Estate Markets, Exchange Rate Risks and Diversification Consequences

International real estate related securities are investigated to see whether they offer any incremental diversification benefits over foreign stocks using mean-variance analysis together with a multifactor latent variable model. Diversification benefits are found to be primarily driven by unanticipated returns which are partially driven by changes in exchange rate risk. Although exchange rate risk accounts for a larger portion of the return fluctuation in real estate related securities relative to common stocks, international real estate securities provide some incremental diversification benefits over common stocks even if currency risks are hedged.