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The Sources of Risk Spillovers among U.S. REITs: Financial Characteristics and Regional Proximity
Author(s) -
Adams Zeno,
Füss Roland,
Schindler Felix
Publication year - 2014
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/1540-6229.12060
Subject(s) - real estate investment trust , diversification (marketing strategy) , spillover effect , financial distress , real estate , economics , investment (military) , business , financial economics , finance , financial system , macroeconomics , marketing , politics , political science , law
In this article, we estimate the risk spillovers among 74 U.S. Real Estate Investment Trusts (REITs) using the state‐dependent sensitivity value‐at‐risk approach. This methodology allows for the quantification of the spillover size as a function of a company's financial condition. We show that the size of risk spillovers is more than twice as large when REITs are in financial distress and find evidence for the impact of geographical proximity. Our results provide new insights concerning the relevance of geographical diversification for REITs and have important implications for the investment and risk management decisions of real estate investors, mortgage lenders, home suppliers and policy makers.