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Applying the Fama and French three-factor model to analyze risk/reward in the Spanish REITs: an ARDL approach

Zhenyu Su (Department of Applied Economics, University of Alicante, Alicante, Spain and International Business School Suzhou, Xi’an Jiaotong-Liverpool University, Suzhou, China)
Paloma Taltavull (Department of Applied Economics, University of Alicante, Alicante, Spain)

Journal of European Real Estate Research

ISSN: 1753-9269

Article publication date: 10 June 2021

Issue publication date: 2 August 2021




This paper aims to analyse the risk and excess returns of the Spanish real estate investment trusts (S-REITs) using various methods, though focusing primarily on the Fama-French three-factor (FF3) model, over the period from 2007Q3 to 2017Q2.


The autoregressive distributed lag model is used for the empirical analysis to test long-term stable relationships between variables.


The findings indicate that the FF3 model is suitable for the S-REITs market, better explaining the S-REITs’ returns variation than the traditional single-index capital asset pricing model (CAPM) and the Carhart four-factor model. The empirical evidence is reasonably consistent with the FF3 model; the values for the market, size and value are highly statistically significant over the analysis period, with 68.7% variation in S-REITs’ returns explained by the model. In the long run, the market factor has less explanatory power than the size and value factors; the positive long-term multiplier of the size factor indicates that small S-REIT companies have higher returns, along with higher risk, while the negative multiplier of the value indicator suggests that S-REITs portfolios prefer to allocate growth REITs with low book-to-market ratios. The empirical findings from a modified FF3 model, which additionally incorporates Spain’s gross domestic product (GDP) growth rate, two consumer price index (CPI) macro-factors and three dummy variables, indicates that GDP growth rate and CPI also affect S-REITs’ yields, while investment funds with capital calls have a small influence on S-REITs’ returns.

Practical implications

The regression results of the standard and extended FF3 model can help researchers understand S-REITs’ risk and return through a general stock pattern. Potential investors are given more information to consider the new Spanish investment vehicle before making a decision.


The paper uses standard techniques but applies them for the first time to the S-REIT market.



The authors thank Professor Carlos Forner, from Alicante University, for providing us with the Spanish Carhart four indicators. We also want to acknowledge the comments from two anonymous referees and the editor who have strongly contributed to improving this paper. Any mistake remains on our side.


Su, Z. and Taltavull, P. (2021), "Applying the Fama and French three-factor model to analyze risk/reward in the Spanish REITs: an ARDL approach", Journal of European Real Estate Research, Vol. 14 No. 2, pp. 189-208.



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