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Listed property trusts and downside systematic risk sensitivity

Chyi Lin Lee (Faculty of Architecture, Building and Planning, The University of Melbourne, Melbourne, Australia)
Jon Robinson (Faculty of Architecture, Building and Planning, The University of Melbourne, Melbourne, Australia)
Richard Reed (Faculty of Architecture, Building and Planning, The University of Melbourne, Melbourne, Australia)

Journal of Property Investment & Finance

ISSN: 1463-578X

Article publication date: 11 July 2008

Abstract

Purpose

This paper aims to identify and examine the determinants of downside systematic risk in Australian listed property trusts (LPTs).

Design/methodology/approach

Capital asset pricing model (CAPM) and lower partial moment‐CAPM (LPM‐CAPM) are employed to compute both systematic risk and downside systematic risk. The methodology of Patel and Olsen and Chaudhry et al. is adopted to examine the determinants of systematic risk and downside systematic risk.

Findings

The results confirm that systematic risk and downside systematic risk can be individually identified. There is little evidence to support the existence of linkages between systematic risk in Australian LPTs and financial/management structure determinants. On the other hand, downside systematic risk is directly related to the leverage/management structure of a LPT. The results are also robust after controlling for the LPTs' investment characteristics and varying target rates of return.

Practical implications

Investors and real estate analysts should conscious with the higher returns from high leverage and internally managed LPTs. Although there is no evidence that these higher returns are related to higher systematic risk, there could be the compensation for higher downside systematic risk.

Originality/value

This study provides invaluable insights into the management of real estate risk in Australian LPTs with implications for REITs in other countries. Unlike previous studies of systematic risk in REITs or LPTs, this is the first study to assess downside systematic risk and explore the determinants of downside systematic risk in LPTs.

Keywords

Citation

Lin Lee, C., Robinson, J. and Reed, R. (2008), "Listed property trusts and downside systematic risk sensitivity", Journal of Property Investment & Finance, Vol. 26 No. 4, pp. 304-328. https://doi.org/10.1108/14635780810886627

Publisher

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Emerald Group Publishing Limited

Copyright © 2008, Emerald Group Publishing Limited