REIT Short Sales and Return Predictability

We examine REIT short sale transactions and show REITs are shorted less frequently than non-REITs. Results also show short sellers are less able to predict negative future returns for REITs, relative to non-REITs, which is consistent with increased pricing efficiency for REITs and suggests REIT assets are more transparent. In a broader context, these results suggest differences in transparency across asset types influence the effectiveness of short selling. Results showing REIT short sellers are contrarian imply traders target REITs that are performing well instead of underperforming REITs, suggesting restrictions on REIT short sales should be re-evaluated.     

Efficiency,Scale Economies,and the Risk/Return Performance of Real Estate Investment Trusts

Estimates from a directional output distance function are used to construct a risk/return frontier that defines the best-practice management technology for Real Estate Investment Trusts (REITs). We model REIT performance as a production process in which each REIT produces a desirable output (return) and an undesirable output (risk) using inputs of managerial effort and financial capital. The results suggest that ignoring the effects of risk yields a management technology that is significantly different from one that incorporates risk. In addition, market valuation is inversely related to inefficiency and directly related to leverage.     

Dedicated REIT Mutual Fund Flows and REIT Performance

This study examines the effects of weekly and monthly capital flows into the dedicated REIT mutual fund sector on aggregate REIT returns and, simultaneously, the effects of industry-level REIT returns on subsequent REIT mutual fund flows. The dynamic relation between REIT capital flows and returns is estimated using vector autoregression (VAR) techniques. Unlike static regression techniques, our dynamic model produces estimates of the short-run relationships, long-run relationships, impulse response functions, and forecast variance decompositions. We find evidence that REIT mutual fund flows are positively and significantly related to prior returns, while prior REIT mutual fund flows do not significantly influence REIT returns. However, contemporaneous flows do appear to have an initial positive effect, which is partially reversed one period later. The positive contemporaneous effect, however, is the result of unexpected REIT mutual fund flows, while the expected portion is insignificant.     

The Performance of Hedge Funds: Risk, Return, and Incentives

Hedge funds display several interesting characteristics that may influence performance, including: flexible investment strategies, strong managerial incentives, substantial managerial investment, sophisticated investors, and limited government oversight. Using a large sample of hedge fund data from 1988–1995, we find that hedge funds consistently outperform mutual funds, but not standard market indices. Hedge funds, however, are more volatile than both mutual funds and market indices. Incentive fees explain some of the higher performance, but not the increased total risk. The impact of six data-conditioning biases is explored. We find evidence that positive and negative survival-related biases offset each other.     

Monetary Policy, Term Structure and Asset Return: Comparing REIT, Housing and Stock

This paper confirms that a regime-switching model out-performs a linear VAR model in terms of understanding the system dynamics of asset returns. Impulse responses of REIT returns to either the federal funds rate or the interest rate spread are much larger initially but less persistent. Furthermore, the term structure acts as an amplifier of the impulse response for REIT return, a stabilizer for the housing counterpart under some regime, and, perhaps surprisingly, almost no role for the stock return. In contrast, GDP growth has very marginal effect in the impulse response for all assets.     

Risk,Return, and Performance Measurement: A Case of Unrealistic Expectations?

Client criteria imposed upon active asset management companies to hold only high-quality (HQ) investments in achieving specific Treasury-adjusted spreads and above-average rates of return effectively mandate a passive management policy and can be met only with very low probability. HQ investments do not consistently outperform either medium (MQ) or low quality (LQ) investments over time regardless of whether returns are measured monthly, quarterly, or yearly. Further, both time series and cross-sectional results show that HQ sectors are generally associated with ex post returns that are lower than those for either MQ or LQ sectors. Finally, HQ sectors do not outperform MQ and LQ sectors in consistently surpassing Treasury spreads or crediting rates. These results suggest that periodic evaluation of asset performance in light of such stringent criteria misunderstands the dynamic nature of the market as well as fundamental risk/return relationships.     

REIT Stock Splits and Market Efficiency

An analysis of real estate investment trust (REIT) stock splits is presented. Evaluation of the initial reaction to split REITs supports efficient market pricing where REITs generate statistically significant positive announcement date returns, no statistically significant record date returns, and muted ex-date returns. In the long-term, split REITs do not consistently out perform benchmark portfolios over one-year, two-year, and three-year periods. REITs split subsequent to a substantial run up in stock price and to improve the position of their post split stock price relative to the stock price of the typical REIT.     

Idiosyncratic Risk and REIT Returns

The volatility of a stock returns can be decomposed into market and firm-specific volatility, with the former commonly known as systematic risk and the later as idiosyncratic risk. This study examines the relevance of idiosyncratic risk in explaining the monthly cross-sectional returns of REIT stocks. Contrary to the CAPM theory, a significant positive relationship is found between idiosyncratic volatility and the cross-sectional returns. This suggests that firm-specific risk matters in REIT pricing. The regression results further show that once idiosyncratic risk is controlled for in the asset-pricing model, the size and book-to-market equity ratio factors ceased to be significant. The explanatory power of the momentum effect remains robust in the presence of idiosyncratic risk.

Land Development: Risk, Return and Risk Management

We model and examine the financial aspects of the land development process incorporating the industry practice of preselling lots to builders through the use of option contracts as a risk management technique. Using contingent claims valuation, we are able to determine endogenously the land value, presale option value, credits spreads and the effects of presales on debt pricing and equity expected returns. We show that using presales options effectively shift market risk from the land developer to the builder. Results from the model are consistent with the high rates of return on equity observed in empirical surveys; they also suggest that developers may be justified in pursuing projects with substantially lower expected returns to equity when a large number of lots can be presold. Additionally, we show that presales reduce default risk dramatically for leveraged projects and can support a considerable reduction in the cost of construction financing. Large debt risk premiums are justified for highly levered projects, which helps explain the use of mezzanine financing in the land development industry to reduce expected default costs.

REIT Risk Premium Sensitivity and Interest Rates

This analysis investigates several aspects of the relationship between daily REIT stock risk premiums and various interest rates. Consistent with prior research, the general findings indicate that interest rates do impact REIT returns. This study specifically finds that stock returns are more sensitive to maturity rate spread between short- and long-term treasuries than the credit rate spread between commercial bonds and treasuries. In addition, the analyses document a structural model shift during the nineties that has made REITs more sensitive to credit risk. In additional to change in investor clientele, an analysis of declining REIT credit-worthiness points to a root cause for this shift.     

Corporate Governance, Opaque Bank Activities, and Risk/Return Efficiency: Pre- and Post-Crisis Evidence from Turkey

Does better corporate governance unambiguously improve the risk/return efficiency of banks? Or does either a re-orientation of banks’ revenue mix towards more opaque products, an economic downturn, or tighter supervision create off-setting or reinforcing effects? The authors relate bank efficiency to shortfalls from a stochastic risk/return frontier. They analyze how internal governance mechanisms (CEO duality, board experience, political connections, and education profile) and external governance mechanisms (discipline exerted by shareholders, depositors, or skilled employees) determine efficiency in a sample of Turkish banks. The 2000 financial crisis was a wake-up call for bank efficiency and corporate governance. As a result, better corporate governance mechanisms have been able to improve risk/return efficiency when the economic, regulatory, and supervisory environments are more stable and bank products are more complex.     

The Long-Horizon Performance of REIT Mergers

We study long-horizon shareholder returns in a comprehensive sample of Real Estate Investment Trust (REIT) mergers, to test whether or not the anomaly of post-merger underperformance observed in conventional firms applies to the case of REITs. Constructing synthetic benchmark portfolios controlling for firm size and for book-to-market value ratio, we find that 60-month buy-and-hold abnormal returns for REIT acquirers are significantly negative at approximately −10%, supporting the position that REIT merger acquirers underperform non-merging REITs in the long run. We find no evidence to challenge previous studies reporting positive announcement period returns for acquirers when the target is privately held, but we do find evidence that these positive returns do not persist. The long term performance of acquiring REITs is approximately the same whether the target is public or private.

操作风险管理体制：框架、模式与建构

从理论上讲,一个完整全面的操作风险管理框架至少应该在理论上包括风险管理战略、风险管理流程、基础设施和风险管理环境等四个组成部分。从实践上看,国际上形成了三种比较典型的各具特色的有关操作风险管理体制模式,对于中国各商业银行操作风险管理体制的建构,具有借鉴价值。     

Extreme Risk Measures for International REIT Markets

Extreme risks associated with extraordinary market conditions are catastrophic for all investors. The ongoing financial crisis has perfectly exemplified this point. Surprisingly, there are few studies exploring this issue for REITs. This study aims to close the knowledge gap. We conduct a comprehensive study by utilizing all three methodological categories to examine their forecasting performances of VaR and ES for nine major global REIT markets. Our findings indicate that there is no universally adequate method to model extreme risks across global markets. Also, estimating risks for the stock and REIT markets may require different methods. In addition, we compare the risk profiles between the stock and REIT markets, and find that the extreme risks for REITs are generally higher than those of stock markets. The fluctuations of risk levels are well synchronized between the two types of markets. The current crisis has significantly increased the extreme risk exposure for both REIT and stock investors. In all, our results have significant implications for REIT risk management, portfolio selection, and evaluation.     

Financial Opacity and Firm Performance: The Readability of REIT Annual Reports

We examine the capital market pricing implications of firm disclosure opacity as measured by the linguistic readability of REIT annual reports. The SEC has expressed concern that firms selectively manage the transparency of disclosures in order to hide adverse information. After controlling for other non-experimental factors that influence the readability of REIT financial statements, we find (1) financial opacity is negatively related to reported firm performance, and (2) the residual opacity that remains after controlling for other determinants of annual report readability has incremental explanatory power for returns beyond the Fama and French (1992, 1993) risk factors. The opacity risk-return premium persists after controlling for a (heretofore undocumented) stark monotonic decrease in annual report readability following the Sarbanes-Oxley Act of 2002.     

REIT Momentum and Characteristic-Related REIT Returns

Recent evidence confirms that in factor-model examinations of the cross-section of REIT returns, REIT momentum emerges as the dominant driver. Acknowledging the importance of momentum, the current study explores whether and how REIT return patterns are linked to the underlying characteristics of the REITs themselves, in the manner of Daniel and Titman’s (Journal of Finance 52(1):1–33, 1997, Journal of Portfolio Management 24(4):24–33, 1998) characteristics model. Over the period 1993 through 2009, we find that after controlling for momentum, book-to-market, institutional ownership, and illiquidity are all strongly associated with REIT returns while size and analyst coverage are not. We further extend prior research by examining the influence of changes in interest rate cycles on REIT returns, and find that the characteristic-return relationships are heavily influenced by interest rates.     

Operational Risk: A Survey

Operational risk has, in a relatively short period of time, risen from non‐recognition to prominence as the culprit for spectacular corporate collapses. This paper surveys the mushrooming literature on the subject, covering the definition, classification, characteristics, modeling and management of operational risk. It is concluded that operational risk is a controversial topic that will generate a significant amount of research in the years to come.     

Convertible Bond Arbitrage: Risk and Return

Abstract:  This paper specifies a simulated convertible bond arbitrage portfolio to characterise the risks in convertible bond arbitrage. For comparison the risk profile of convertible bond arbitrage hedge fund indices at both monthly and daily frequencies is also examined. Results indicate that convertible bond arbitrage is positively related to default and term structure risk factors. These risk factors are augmented with the simulated convertible bond arbitrage portfolio, mimicking a passive investment in convertible bond arbitrage, to assess the risk and return of individual hedge funds. We provide estimates of the performance of two hedge fund indices (an equally weighted and value weighted index) and a sample of convertible bond arbitrage hedge funds using a factor model methodology. Lagged and contemporaneous observations of the risk factors are specified, controlling for illiquidity in the securities held by funds. Our results cover two time periods. Initially we find evidence of abnormal risk adjusted returns in the individual hedge fund data and the equally weighted hedge fund index and no evidence of abnormal risk adjusted returns in the value weighted hedge fund index. When we examine performance during the credit crisis of 2007 and 2008 we find evidence of negative abnormal returns amongst individual hedge funds and the hedge fund indices.