The payoff and implied pricing kernel in REITs

This article explores the hybrid character (i.e. the resemblance of both stock and bond) of Real Estate Investment Trust (REIT) through the implied pricing kernel behind REITs prices. We use the Empirical Pricing kernel method (Rosenberg and Engle, 2002 ) to explore their Payoff probability density...

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Bibliographic Details
Published inApplied economics Vol. 40; no. 21; pp. 2775 - 2783
Main Author Hsu, Hsiao-Tang
Format Journal Article
LanguageEnglish
Published London Routledge 01.11.2008
Taylor and Francis Journals
Taylor & Francis Ltd
SeriesApplied Economics
Subjects
Investment policy
Investment returns
Investment trusts
Pricing
Rates of return
Real estate market
REITs
Securities prices
Stochastic models
Studies
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Summary:This article explores the hybrid character (i.e. the resemblance of both stock and bond) of Real Estate Investment Trust (REIT) through the implied pricing kernel behind REITs prices. We use the Empirical Pricing kernel method (Rosenberg and Engle, 2002 ) to explore their Payoff probability density and extract the implied pricing kernel. To estimate payoff probability density, we use asymmetric GARCH model. Results indicate that implied pricing kernels flatten in all ranges of low rate of returns and decrease exponentially in ranges of high rate of returns. This means the REIT pricing kernel resembles a bond when rate of return is low, and a stock when it is high. The pattern is consistent between 1970 and 2000.
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
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ISSN:0003-6846
1466-4283
DOI:10.1080/00036840600970344