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The Predictability of REITs Returns: Evidence From Japan

The Predictability of REITs Returns: Evidence From Japan Using Japan REITs stock data, this paper examines the risk‐return relations conditional on up and down markets periods. The results show that beta is significantly and positively (negatively) related to realized returns in up (down) markets before and after controlling for extra risk factors. The same conditional results are found for unsystematic risk and total risk, providing evidence that investors do not hold well‐diversified portfolios. Though skewness is significantly priced, the coefficients are unexpectedly positive (negative) in up (down) markets, indicating that investors dislike positively skewed portfolios and would ask for compensation if they are required to hold them during up markets. One possible reason is that the investors have a poor concept of skewness and/or they are too aggressive during bullish markets and so they ignore the benefit of positive skewness. Subsidiary results highlight that there is no seasonal effect in the conditional relation between beta/unsystematic risk/total risk/skewness and returns. This study is the first comprehensive study of the risk‐return relations in Japan REITs market, which provides out‐of‐sample evidence relative to earlier tests on Asian and international stock markets. The findings give important insights and provide useful guidance on investing in Japan REITs market. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Asia Business Studies Emerald Publishing

The Predictability of REITs Returns: Evidence From Japan

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Publisher
Emerald Publishing
Copyright
Copyright © 2009 Emerald Group Publishing Limited. All rights reserved.
ISSN
1558-7894
DOI
10.1108/15587890980001517
Publisher site
See Article on Publisher Site

Abstract

Using Japan REITs stock data, this paper examines the risk‐return relations conditional on up and down markets periods. The results show that beta is significantly and positively (negatively) related to realized returns in up (down) markets before and after controlling for extra risk factors. The same conditional results are found for unsystematic risk and total risk, providing evidence that investors do not hold well‐diversified portfolios. Though skewness is significantly priced, the coefficients are unexpectedly positive (negative) in up (down) markets, indicating that investors dislike positively skewed portfolios and would ask for compensation if they are required to hold them during up markets. One possible reason is that the investors have a poor concept of skewness and/or they are too aggressive during bullish markets and so they ignore the benefit of positive skewness. Subsidiary results highlight that there is no seasonal effect in the conditional relation between beta/unsystematic risk/total risk/skewness and returns. This study is the first comprehensive study of the risk‐return relations in Japan REITs market, which provides out‐of‐sample evidence relative to earlier tests on Asian and international stock markets. The findings give important insights and provide useful guidance on investing in Japan REITs market.

Journal

Journal of Asia Business StudiesEmerald Publishing

Published: Oct 16, 2009

Keywords: Beta; Unsystematic risk; Total risk; REITs; Up and down markets

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