Idiosyncratic Risk and Reit Returns

Posted: 3 Dec 2008

See all articles by Joseph T. L. Ooi

Joseph T. L. Ooi

National University of Singapore (NUS) - Department of Real Estate

Jingliang Wang

affiliation not provided to SSRN

James R. Webb

Cleveland State University

Date Written: December 1, 2008

Abstract

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 idiosycratic 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.

Keywords: idiosyncratic risk, asset pricing, REIT stocks

Suggested Citation

Ooi, Joseph T. L. and Wang, Jingliang and Webb, James R., Idiosyncratic Risk and Reit Returns (December 1, 2008). Journal of Real Estate Finance and Economics, Vol. 38, No. 4, 2009, Available at SSRN: https://ssrn.com/abstract=1309705

Joseph T. L. Ooi (Contact Author)

National University of Singapore (NUS) - Department of Real Estate ( email )

4 Architecture Drive
Singapore 117566
Singapore

Jingliang Wang

affiliation not provided to SSRN

James R. Webb

Cleveland State University ( email )

1860 E. 18th St., BU 327E
Cleveland, OH 44115
United States
216-687-4716 (Phone)
216-687-4716 (Fax)

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