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The Journal of Real Estate Finance and Economics

Erschienen in:

11.12.2019

Specialization and Institutional Investors’ Performance – Evidence from Publicly Traded Real Estate

verfasst von: Eli Beracha, George D. Cashman, Hilla Skiba

Erschienen in: The Journal of Real Estate Finance and Economics | Ausgabe 1/2021

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Abstract

We examine the extent to which 50,620 global institutional investors’ specialization in publicly traded real estate securities is related to their investment performance. Consistent with the information advantage theory (Merton Journal of Finance 42, 483–510, 1987; Van Nieuwerburgh and Veldkamp Journal of Finance, 64, 1187–1215, 2009), we show a positive relation between the percentage of the institution’s portfolio invested in real estate securities and the return generated on those securities. Moreover, we present evidence that the institution’s level of active share to real estate securities is positively related to performance. Additionally, we find that the benefits related to specialization are more pronounced for investors specializing in a narrow set of securities that requires a unique set of skills to analyze.

Vorheriger Artikel House Price Expectations, Labour Market Developments and the House Price to Rent Ratio: A User Cost of Capital Approach

Nächster Artikel What Can Fifty-Two Collateralizable Wealth Measures Tell Us About Future Housing Market Returns? Evidence from U.S. State-Level Data

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When we discuss real estate securities, we are referring to operating firms that are dependent on the real estate sectors. Table Error! Reference source not found. shows the Standard Industrial Classification (SCI) codes of the firms we classify as “real estate securities.” REITs belong to SIC 6798.

The assertion that REITs require unique expertise is supported by Cici et al. (2011). The authors find that some mutual fund managers can better process REIT-specific information that leads to profitable investment decisions. The authors conclude that outperformance in REITs derives from “endemic abilities” of the managers to process information.

Papers that examine institutional investors in real estate include: Ciochetti, Craft, and Shilling (2002)‘s study of institutional investors’ liquidity concerns; Lantushenko and Nelling’s (2016) and Freybote and Seagraves’ (2017) studies on institutions’ herding behavior in real estate; Devos, Ong, Speiler, and Tsang’s (2013) and Das, Freybote, and Marcato’s (2014) studies on institutional investor behavior, before, during, and after the financial crisis; An, Wu, and Wu’s (2016) study on the relation between institutional ownership and REIT crash risk.

For institutions with multiple portfolios, FactSet provides holdings information for each portfolio. We treat each portfolio as an individual observation throughout the analyses.

We exclude banks and insurance investors from the sample due to their small sample size. We also exclude index funds because they, by definition, do not attempt to outperform the passive index.

We note that a firm must hold at least ten real estate or REIT securities to be included in our active share analysis.

We obtain the systematic risk factors from Kenneth French’s data library. The data have been used previously in global performance studies (e.g., Fama and French 2012).

We observe qualitatively similar results if we include banks and insurance companies in our sample.

The list of tax-havens includes Hong Kong, Andorra, the Bahamas, Bermuda, the Cayman Islands, Cyprus, Gibraltar, Iceland, Monaco, and Malta.

This 3.04% annual Alpha is based on the Alphas reported in specification 2 and 5. Specifically, 0.0304 = 4 * (0.0019 – (−0.0057)).

The −2.2% annual return is calculated as follows: 4 x (0.1 x (−0.0538)) = −0.02152.

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Titel: Specialization and Institutional Investors’ Performance – Evidence from Publicly Traded Real Estate
verfasst von: Eli Beracha
George D. Cashman
Hilla Skiba
Publikationsdatum: 11.12.2019
Verlag: Springer US
Erschienen in: The Journal of Real Estate Finance and Economics / Ausgabe 1/2021
Print ISSN: 0895-5638
Elektronische ISSN: 1573-045X
DOI: https://doi.org/10.1007/s11146-019-09732-w

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