Colin, Lizieri, Stephen, Satchell and Qi, Zhang (2007) The underlying return-generating factors for REIT returns: An application of independent component analysis. Real Estate Economics, 35 (4). pp. 569-598. ISSN 1080-8620 (Print), 1540-6229 (Online) (doi:https://doi.org/10.1111/j.1540-6229.2007.00201.x)

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Abstract

Multifactor approaches to real estate returns have emphasized a macro-variables approach in preference to the latent factor approach originally used in arbitrage pricing theory. Use of high-frequency data, trading strategies and growing emphasis on the risks of extreme events makes the macrovariable procedure problematic. This article explores an alternative to the principal components analysis approach: independent components analysis (ICA). ICA seeks independence and maximizes a chosen risk parameter. We apply an ICA procedure based on a kurtosis maximization algorithm to real estate investment trust (REIT) data. The results show that ICA successfully captures kurtosis characteristics of REIT returns, offering possibilities for developing of risk management strategies that are sensitive to extreme events and tail distributions, augmenting traditional mean–variance approaches.

Item Type:	Article
Additional Information:	[1] First published online: 16 November 2007. [2] A version of this article was originally presented at the symposium in honor of Pat Hendershott, at The Ohio State University. [3] Published by John Wiley & Sons, Inc. on behalf of the American Real Estate and Urban Economics Association.
Uncontrolled Keywords:	Real Estate Investment Trust, factor analysis, return generating factors, principal component analysis, independent component analysis
Subjects:	H Social Sciences > HG Finance
Faculty / School / Research Centre / Research Group:	Faculty of Business > Department of Accounting & Finance
Related URLs:	Publisher Publisher Organisation
Last Modified:	14 Oct 2016 09:22
URI:	http://gala.gre.ac.uk/id/eprint/8902

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