The structure of REIT-beta

Recent studies have documented an asymmetry in the market-beta of equity Real Estate Investment Trusts (REITs) based on high and low Gross Domestic Product (GDP) growth states, as well as in bull and bear stock markets. The asymmetry has been deemed a puzzle (Chatrath <italic>et al</italic>., 2000; Chiang <italic>et al</italic>., 2004); some previous studies explained it by describing the structural changes in REITs market and others included more variables to reduce the effect of asymmetry. What seems to be lacking, however, is a general theoretical explanation. This article provides a theoretical model in which the daily and monthly price series of REITs are separately described to explain the structure of REIT-beta and to solve this puzzle. We find there are four factors and the interaction of those determining the value of estimated beta. The results of previous studies might only be able to observe a few pieces of the nature of REIT-beta.