Journal
JOURNAL OF REAL ESTATE FINANCE AND ECONOMICS
Volume 62, Issue 3, Pages 455-480Publisher
SPRINGER
DOI: 10.1007/s11146-020-09756-7
Keywords
Distress risk; REIT return; Distress anomaly; VIX; Institutional ownership
Categories
Funding
- Hong Kong Polytechnic University [P0030199]
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This study found that distress risk is not a systematic risk or rewarded with a risk premium in the REIT market. The performance difference between safe REITs and distressed REITs can be explained by institutional investments and investors' risk aversion.
This paper explores the relationship between distress risk and stock return on equity REITs from 1982 to 2017. The distress risk measures such as expected default frequency and failure probability can effectively predict financial failures in the REITs. The distressed REITs earn lower returns than the safe REITs, and the underperformance becomes even worse after correcting the value and size risks. The findings indicate that the distress risk is not a systematic risk or rewarded with a risk premium in the REIT market. The distress anomaly from long the safest REITs and short the most distressed REITs can be explained by the institutional investments in the REITs and the investors' risk aversion.
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