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Article
Publication date: 7 February 2020

Enrico Battisti, Fabio Creta and Nicola Miglietta

This paper gathers initial evidence about the nature and features of the equity crowdfunding model in Italy, especially in terms of regulations. The purpose of this study is to…

1129

Abstract

Purpose

This paper gathers initial evidence about the nature and features of the equity crowdfunding model in Italy, especially in terms of regulations. The purpose of this study is to examine how equity crowdfunding might support the real estate sector in Italy.

Design/methodology/approach

To explore the recent initiatives in the development of FinTech in Italy, especially referring to equity crowdfunding’s instrument, a qualitative perspective is used. In particular, this paper relies on primary data from regulations and secondary data from the public domain, which are examined in relation to the current literature.

Findings

The results of this study show that equity crowdfunding represents a funding method that is rapidly increasing in Italy, despite rather rigid regulation. Among the various sectors involved, the real estate sector could benefit from the crowdfunding models and, specifically, from the equity one. The development of new real estate equity crowdfunding portals that allow diversification of investment (by reducing the typical entry barriers for real estate investment) could guarantee greater investment transparency and simplicity.

Practical implications

Real estate crowdfunding can be a simple way to invest in the real estate industry. Thanks to the use of technology, specifically internet-based platforms, this type of crowdfunding allows for small investors, as well as professional investors, to access an asset class otherwise not open to small investment tickets and improve the diversification of investments.

Originality/value

Although recent literature has examined the concept of crowdfunding and highlighted different models, aspects and campaigns, no prior studies, to the authors’ knowledge, have explicitly and jointly investigated, also based on the state of art of regulation, the equity crowdfunding model and the real estate sector in Italy.

Details

Journal of Financial Regulation and Compliance, vol. 28 no. 3
Type: Research Article
ISSN: 1358-1988

Keywords

Article
Publication date: 5 May 2015

Stephan Lang and Wolfgang Schaefers

Recent studies in the field of behavioral finance have highlighted the importance of investor sentiment in the return-generating process for general equities. By employing an…

Abstract

Purpose

Recent studies in the field of behavioral finance have highlighted the importance of investor sentiment in the return-generating process for general equities. By employing an asset pricing framework, this paper aims to evaluate the performance of European real estate equities, based on their degree of sentiment sensitivity.

Design/methodology/approach

Using a pan-European data set, we classify all real estate equities according to their sentiment sensitivity, which is measured relative to the Economic Sentiment Indicator (ESI) of the European Commission. Based on their individual sentiment responsiveness, we form both a high- and low-sensitivity portfolio, whose returns are included in the difference test of the liquidity-augmented asset pricing model. In this context, we analyze the performance of sentiment-sensitive and sentiment-insensitive real estate equities with a risk-adjusted perspective over the period July 1995 to June 2012.

Findings

While high-sensitivity real estate equities yield significantly higher raw returns than those with low-sensitivity, we find no evidence of risk-adjusted outperformance. This indicates that allegedly sentiment-driven return behavior is in fact merely compensation for taking higher fundamental risks. In this context, we find that sentiment-sensitive real estate equities are exposed to significantly higher market risks than sentiment-insensitive ones. Based on these findings, we conclude that a sentiment-based investment strategy, consisting of a long-position in the high-sensitivity portfolio and a short-position in the low-sensitivity one, does not generate a risk-adjusted profit.

Research limitations/implications

Although this study sheds some light on investor sentiment in European real estate stock markets, further research could usefully concentrate on alternative sentiment proxies.

Originality/value

This is the first study to disentangle the relationship between investor sentiment and European real estate stock returns.

Details

Journal of European Real Estate Research, vol. 8 no. 1
Type: Research Article
ISSN: 1753-9269

Keywords

Article
Publication date: 29 April 2014

Kai-Magnus Schulte

This study is the first to examine the role of idiosyncratic risk in the pricing of European real estate equities. The capital asset pricing model predicts that in equilibrium…

Abstract

Purpose

This study is the first to examine the role of idiosyncratic risk in the pricing of European real estate equities. The capital asset pricing model predicts that in equilibrium, investors should hold the market portfolio. As a result, investors should only be rewarded for carrying undiversifiable systematic risk and not for diversifiable idiosyncratic risk. The study is adding to the growing body of countering studies by first examining time trends of idiosyncratic risk and subsequently the pricing of idiosyncratic risk in European real estate equities. The paper aims to discuss these issues.

Design/methodology/approach

The study analyses 293 real estate equities from 16 European capital markets over the 1991-2011 period. The framework of Fama and MacBeth is employed. Regressions of the cross-section of expected equity excess returns on idiosyncratic risk and other firm characteristics such as beta, size, book-to-market equity (BE/ME), momentum, liquidity and co-skewness are performed. Due to recent evidence on the conditional pricing of European real estate equities, the pricing is also investigated using the conditional framework of Pettengill et al. Either realised or expected idiosyncratic volatility forecasted using a set of exponential generalized autoregressive conditional heteroskedasticity models are employed.

Findings

The initial analysis of time trends in idiosyncratic risk reveals that while the early 1990s are characterised by both high total and idiosyncratic volatility, a strong downward trend emerged in 1992 which was only interrupted by the burst of the dotcom bubble and the 9/11 attacks along with the global financial and economic crisis. The largest part of total volatility is idiosyncratic and therefore firm-specific in nature. Simple cross-correlations indicate that high beta, small size, high BE/ME, low momentum, low liquidity and high co-skewness equities have higher idiosyncratic risk. While size and BE/ME are priced unconditionally from 1991 to 2011, both measures of idiosyncratic risk fail to achieve significance at reasonable levels. However, once conditioned on the general equity market or real estate equity market, a strong positive relationship between idiosyncratic risk and expected returns emerges in up-markets, while the opposite relationship exists in down-markets. The relationship is robust to firm-specific factors and a series of robustness checks.

Research limitations/implications

The results show that ignoring the conditional relationship between idiosyncratic risk and returns might result in the false realisation that idiosyncratic risk does not matter in the pricing of risky (real estate) assets.

Originality/value

This study is the first to examine the role of idiosyncratic risk in the pricing of European real estate equities. The study reveals differences in the pricing of European real estate equities and US REITs. The study highlights that ignoring the conditional relationship between idiosyncratic risk and returns might result in the false realisation that idiosyncratic risk does not matter in the pricing of risky assets.

Details

Journal of European Real Estate Research, vol. 7 no. 1
Type: Research Article
ISSN: 1753-9269

Keywords

Article
Publication date: 1 February 2007

Jörg Frehse

The significance of private equity as a form of financing and investing has led to growing interest in the real estate economy over the past few years. Anglo‐American investors in…

1387

Abstract

The significance of private equity as a form of financing and investing has led to growing interest in the real estate economy over the past few years. Anglo‐American investors in particular are currently engaged in large‐scale real estate transactions and have now become the most important group of investors in the European hotel real estate market. However, for private equity funds, the high risk of investing in complex tourism and specialized real estate such as hotels is always coupled with an expectation of returns well above the market average. Yet actually achieving above market returns is not always accomplished. This paper therefore deals with the question of why some real estate private equity investors succeed in getting returns above the total market average even in the overall bear Western European market environment while others fail to do so. It shows that one formula for success includes deliberately exploiting market imperfections und overcoming inefficient information policies.

Details

Tourism Review, vol. 62 no. 1
Type: Research Article
ISSN: 1660-5373

Keywords

Article
Publication date: 25 October 2011

Kai‐Magnus Schulte, Tobias Dechant and Wolfgang Schaefers

The purpose of this paper is to investigate the pricing of European real estate equities. The study examines the main drivers of real estate equity returns and determines whether…

1826

Abstract

Purpose

The purpose of this paper is to investigate the pricing of European real estate equities. The study examines the main drivers of real estate equity returns and determines whether loadings on systematic risk factors – the excess market return, small minus big (SMB), HIGH minus low (HML) – can explain cross‐sectional return differences in unconditional as well as in conditional asset pricing tests.

Design/methodology/approach

The paper draws upon time‐series regressions to investigate determinants of real estate equity returns. Rolling Fama‐French regressions are applied to estimate time‐varying loadings on systematic risk factors. Unconditional as well as conditional monthly Fama‐MacBeth regressions are employed to explain cross‐sectional return variations.

Findings

Systematic risk factors are important drivers of European real estate equity returns. Returns are positively related to the excess market return and to a value factor. A size factor impacts predominantly negatively on real estate returns. The results indicate increasing market integration after the introduction of the Euro. Loadings on systematic risk factors have weak explanatory power in unconditional cross‐section regressions but can explain returns in a conditional framework. Beta – and to a lesser extent the loading on HML – is positively related to returns in up‐markets and negatively in down markets. Equities which load positively on SMB outperform in down markets.

Research limitations/implications

The implementation of a liquidity or a momentum factor could provide further evidence on the pricing of European real estate equities.

Practical implications

The findings could help investors to manage the risk exposure more effectively. Investors should furthermore be able to estimate their cost of equity more precisely and might better be able to pick stocks for time varying investment strategies.

Originality/value

This is the first paper to examine the pricing of real estate equity returns in a pan‐European setting.

Details

Journal of European Real Estate Research, vol. 4 no. 3
Type: Research Article
ISSN: 1753-9269

Keywords

Article
Publication date: 28 October 2021

Kim Hiang Liow and Jeongseop Song

With growing interdependence between financial markets, the goal of this paper is to examine the dynamic interdependence between corporate equity and public real estate markets…

117

Abstract

Purpose

With growing interdependence between financial markets, the goal of this paper is to examine the dynamic interdependence between corporate equity and public real estate markets for the USA and a select group of seven European developed economies under a cross-country framework in crisis and boom market conditions. Dynamic interdependence is related to four measures of market linkages of “correlation, spillover, connectedness and causality”.

Design/methodology/approach

This study adopts a four-step investigation. The authors first estimate “time-varying variance–covariance spillovers and implied correlations” modeled with the bivariate BEKK-MGARCH methods. Second, the methods of Diebold and Yilmaz (2012, 2014) measure the conditional volatility spillover-connectedness effects across the corporate equity and public real estate markets based on a decomposition of the forecast error variance. Third, the authors implement nonlinear bivariate and multivariate causality tests to understand the lead-lag dynamics of the two asset markets' returns, volatilities and net directional volatility connectedness across different sample periods. Finally, the authors conclude the study by providing a portfolio hedging analysis.

Findings

The authors find that corporate equity and public real estate are moderately interdependent to the extent that their diversification benefits increases in the longer term. Moreover, the authors find increased corporate equity-public real estate causal dependence of the market groups of the European and international portfolios during the GFC and INTERCRISIS periods. The nonlinear causality test findings indicate that the joint information of asset markets can be a useful source of prediction for future innovation of market risks. Additionally, policy makers may also be able to employ conditional volatility and volatility connectedness as two other measures to manage market stability in the cross-asset market dependence during highly volatile periods.

Research limitations/implications

One major take away from this academic research is since international portfolio investors are not only concerned the long-term price relationship but also the correlation structure and volatility spillover-connectedness, the conditional BEKK modeling, generalized risk connectedness analysis and nonlinear causal dependence explorations from this multi-country study can shed fresh light on the nature of market interdependence and magnitude of volatility connectedness effects in a multi-portfolio framework.

Practical implications

The hedging performance analysis for portfolio diversification and risk management indicates that industrial stocks (“pure” equities) are valuable assets that can improve the hedging performance of a well-diversified corporate equity-public real estate portfolio during crisis periods. For policymakers, the findings provide important information about the nature of causal links and predictability during the crisis and asset-market boom periods. They can then equip with this information to manage and coordinate market stability in cross corporate equity-real estate relationships effectively.

Originality/value

Although traditional research has in general reported at least a moderate degree of relationship between the two asset markets, investors' knowledge of stock-public real estate market linkage is somewhat inadequate and confine mostly to broad stocks (i.e. stocks that are exposed to public real estate influence) in a single-country context. In this paper, the authors examine the interdependence dynamics in a multi-country (multi-portfolio) context. A clear understanding their changing market relationships in a multi-country context is of crucial importance for portfolio investors, financial institutions and policy makers. Moreover, since the authors use an orthogonal stock market index, the authors allow global investors to understand the potential diversification benefits from stock markets that are beyond the public real estate market under different market conditions.

Details

Journal of European Real Estate Research, vol. 15 no. 2
Type: Research Article
ISSN: 1753-9269

Keywords

Article
Publication date: 29 April 2014

Alexander Scholz, Stephan Lang and Wolfgang Schaefers

Understanding the pricing of real estate equities is a central objective of real estate research. This paper aims to investigate the impact of liquidity on European real estate

1419

Abstract

Purpose

Understanding the pricing of real estate equities is a central objective of real estate research. This paper aims to investigate the impact of liquidity on European real estate equity returns, after accounting for well-documented systematic risk factors.

Design/methodology/approach

Based on risk factors derived from general equity data, the authors extend the Fama-French time-series regression approach by a liquidity factor, using a pan-European sample of 272 real estate equities.

Findings

The empirical results indicate that liquidity is a significant pricing factor in real estate stock returns, even after controlling for market, size and book-to-market factors. In addition, the authors detect that real estate stock returns load predominantly positively on the liquidity risk factor, suggesting that real estate equities tend to behave like illiquid common equities. These findings are underpinned by a series of robustness checks. Running a comparative analysis with alternative factor models, the authors further demonstrate that the liquidity-augmented asset-pricing model is most appropriate for explaining European real estate stock returns.

Research limitations/implications

The inclusion of sentiment and downside risk factors could provide further insights into real estate asset pricing in European capital markets.

Originality/value

This is the first study to examine the role of liquidity as a systematic risk factor in a pan-European setting.

Details

Journal of European Real Estate Research, vol. 7 no. 1
Type: Research Article
ISSN: 1753-9269

Keywords

Article
Publication date: 2 November 2015

Alexander Scholz, Karim Rochdi and Wolfgang Schaefers

The purpose of this paper in this context is to examine the impact of asset liquidity on real estate equity returns, after taking well-documented systematic risk factors into…

1423

Abstract

Purpose

The purpose of this paper in this context is to examine the impact of asset liquidity on real estate equity returns, after taking well-documented systematic risk factors into account. Due to their unique characteristics, real estate equities constitute an inherently low degree of underlying asset liquidity.

Design/methodology/approach

Following the Fama-French time-series regression approach, the authors extend the conventional asset pricing model by a real estate-specific asset liquidity factor (ALF), using a sample of 244 real estate equities.

Findings

The results, based on monthly data for the period 1999-2012, reveal that asset liquidity is a relevant pricing factor which contributes to explaining return variations in real estate equity markets. Accordingly, investors expect a risk premium from listed real estate companies with a low degree of asset liquidity, which is especially the case for companies facing financial constraints and during economic downturns. Furthermore, an investment strategy exploiting differences in the underlying asset liquidity yields considerable average excess returns of upto 8.04 per cent p.a.

Practical implications

Considering the findings presented in this paper, asset liquidity should receive special attention from investors, as well as from the management boards of listed real estate companies. While investors who ignore the magnitude of asset liquidity may systematically misprice real estate equities, management can influence the firm’s cost of capital by adjusting the underlying asset liquidity.

Originality/value

This is the first study to examine the role of an ALF in a real estate asset pricing framework.

Details

Journal of European Real Estate Research, vol. 8 no. 3
Type: Research Article
ISSN: 1753-9269

Keywords

Article
Publication date: 1 April 2014

Abel Olaleye and Benjamin Ekemode

The paper examined the long-run relationship between real estate equity (property listed stock) and non-real estate equity (common stock) in the Nigerian capital market and…

1331

Abstract

Purpose

The paper examined the long-run relationship between real estate equity (property listed stock) and non-real estate equity (common stock) in the Nigerian capital market and established the integration between the investments. The paper aims to discuss these issues.

Design/methodology/approach

The data collected comprised quarterly returns on property listed stock and All Share Index for the period of January 1999-December 2011. The calculated quarterly returns of the investments were subjected to the Philip-Person unit root test after which the integration between the investments was analysed using the Johansson integration test.

Findings

The results showed that real estate equity performed better the non-real estate equity but with corresponding higher risk level. Also, real estate equity had a slightly lower performance when compared with non-real estate equity on return/risk ratio basis. The findings showed that property listed stock (real estate equity) was integrated with common stock or non-real estate equity and suggest that the Nigerian listed property stock, by nature, was similar to REITs. This result negates the belief that property listed stock's returns are integrated with direct real estate market and are often influenced by the returns of the underlying direct real estate assets.

Practical implications

The paper implied that while investors could consider investing in real estate equity and earn better return than investing in common equity in the Nigerian capital market, the inclusion of both in a domestic portfolio could be expected to bring little or no diversification benefit.

Originality/value

The paper is one of the few attempts at assessing the long-run relationship between property listed stock as a form of real estate equity and non-real estate equity and especially from African emerging market perspective.

Details

Journal of Property Investment & Finance, vol. 32 no. 3
Type: Research Article
ISSN: 1463-578X

Keywords

Article
Publication date: 2 February 2015

Stephan Lang and Alexander Scholz

The risk-return relationship of real estate equities is of particular interest for investors, practitioners and researchers. The purpose of this paper is to examine, in an asset…

1285

Abstract

Purpose

The risk-return relationship of real estate equities is of particular interest for investors, practitioners and researchers. The purpose of this paper is to examine, in an asset pricing framework, whether the systematic risk factors play a significantly different role in explaining the returns of listed real estate companies, compared to general equities.

Design/methodology/approach

Running the difference test of the Fama-French three-factor and the liquidity-augmented asset pricing model, the authors analyze the effect of the systematic risk factors related to market, size, BE/ME and liquidity in a time-series setting over the period July 1992 to June 2012. By applying the propensity score matching (PSM) algorithm, the authors bypass the “curse of dimensionality” of traditional matching techniques and identify a comparable control sample of general equities, in terms of the relevant firm characteristics of size, BE/ME and liquidity.

Findings

The empirical results indicate that European real estate equity returns load significantly differently on the size, value and liquidity factor, while the influence of the market factor seems to be equivalent. In addition, the authors find an economically and statistically significant underperformance of European real estate equities, after accounting for the diverging role of systematic risk factors. Running the conditional time-series regression, the authors further reveal that these findings are predominately caused by the divergent risk-return behavior of real estate equities in economic downturns.

Practical implications

Due to the diverging role of the systematic risk factors in pricing real estate equities, the authors provide evidence of potential diversification benefits for investors and portfolio managers.

Originality/value

This is the first real estate asset pricing study to dissect the unique risk-return relationship of real estate equities by employing propensity score matching.

Details

Journal of Property Investment & Finance, vol. 33 no. 1
Type: Research Article
ISSN: 1463-578X

Keywords

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