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Article

Style Analysis in Real Estate Markets: Beyond the Sector and Region Dichotomy

Franz Fuerst and Gianluca Marcato
The Journal of Portfolio Management Special Real Estate Issue 2009, 35 (5) 104-117; DOI: https://doi.org/10.3905/JPM.2009.35.5.104
Franz Fuerst
is a lecturer (assistant professor) in the School of Real Estate and Planning at Henley Business School, University of Reading, in Reading, U.K.
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  • For correspondence: f.fuerst@henley.reading.ac.uk
Gianluca Marcato
is a reader (associate professor) in the School of Real Estate and Planning at Henley Business School, University of Reading, in Reading, U.K.
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  • For correspondence: g.marcato@henley.reading.ac.uk
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Abstract

Although returns-based style analysis has been studied extensively in equity markets, applications of this valuable tool for measuring and benchmarking performance and risk in a real estate context are still relatively new. Previous studies in the real estate market have identified three investment categories: sectors, administrative regions, and economic regions. The low explanatory power of this type of categorization, however, reveals the need to extend returnsbased analysis within a real estate context. First, the authors review the obstacles to transferring equity style analysis to real estate. Then, they apply a multivariate model to randomly generated portfolios to test the significance of four real estate investment styles in explaining portfolio returns for various types of properties—small versus big, high yield versus low yield, concentrated versus diversified, and short lease versus long lease. Results show that alpha performance is significantly reduced when the new investment styles are accounted for; the small versus big property style is dominant. In addition, the authors find that the probability of obtaining alpha performance is dependent upon the actual exposure of funds to style factors and that both alpha and systematic risk levels are linked to the actual characteristics of portfolios. Overall, the authors’ results suggest that fund managers should use one of the four (and possibly other) style factors to set benchmarks and to analyze portfolio returns.

  • © 2009 Institutional Investor, Inc.
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The Journal of Portfolio Management: 35 (5)
The Journal of Portfolio Management
Vol. 35, Issue 5
Special Real Estate Issue 2009
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Style Analysis in Real Estate Markets: Beyond the Sector and Region Dichotomy
Franz Fuerst, Gianluca Marcato
The Journal of Portfolio Management Sep 2009, 35 (5) 104-117; DOI: 10.3905/JPM.2009.35.5.104

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Style Analysis in Real Estate Markets: Beyond the Sector and Region Dichotomy
Franz Fuerst, Gianluca Marcato
The Journal of Portfolio Management Sep 2009, 35 (5) 104-117; DOI: 10.3905/JPM.2009.35.5.104
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  • Article
    • Abstract
    • THE EVOLUTION OF REAL ESTATE STYLE ANALYSIS
    • DATA AND STYLE FACTORS
    • DESCRIPTIVE STATISTICS OF INDICES
    • EMPIRICAL MODEL
    • EMPIRICAL RESULTS
    • CONCLUSIONS AND FURTHER WORK
    • ENDNOTE
    • REFERENCES
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