Macroeconomic Variables, Firm-Specific Variables and Returns to REITs

This study investigates the cross-sectional variation in equity real estate investment trusts (EREITs) returns. A pooled cross-sectional, time-series approach is used as an alternative to the two-step Fama-MacBeth regression. With pooling, more powerful tests can be obtained from the limited sample of EREITs available. Beta does not explain return variation. Size is the sole consistent factor explaining prices. None of the variables of Chen, Roll and Ross (1986) is significant when size and book-to-market variables are included in the model. Only the unanticipated change in term structure is significant in versions of the model that exclude firm-specific variables.