Do Public Real Estate Returns Really Lead Private Returns?




Martin Hoesli, Elias Oikarinen, Camilo Serrano

PublisherInstitutional Investor Inc

2015

Journal of Portfolio Management

JOURNAL OF PORTFOLIO MANAGEMENT

J PORTFOLIO MANAGE

10

6

1

18

14

0095-4918

DOIhttps://doi.org/10.3905/jpm.2015.41.6.105



In this article, the authors use sector-level unlevered real estate investment trust (REIT) and direct real estate data to study whether the "escrow lag" in the recording of private market prices could explain the observed lead lag relationship between REITs and direct real estate markets. They find evidence of REIT returns leading private returns in the office and retail sectors even after catering for a 90-day escrow lag. These lead lag relationships are due to the slow reaction of private market returns to shocks in REIT returns, the risk premium, and consumer sentiment. In contrast, the authors do not observe such a lead lag relationship in the apartment and industrial sectors. The findings have implications regarding portfolio allocation, return predictability, and recommended shifts in the allocation between private and public real estate during crisis periods.




Last updated on 2024-26-11 at 21:54