Question: The questions below relate to the following statement: ‘‘Investment returns of (public) REITs appear to exhibit traits of both publicly traded common stock and private real estate market performance, with public stock market influences dominating in the short run and real estate market dynamics in the longer term. REIT returns display greater volatility than private real estate returns, though much of this added volatility is transitory or short-lived.''
a. What explanations have been proposed to address the difference in the investment performance of REITs versus direct property in the short run?
b. What are the linkages between securitization, liquidity, and asset value volatility? Provide two potential explanations for the higher short-run volatility of REIT returns, compared to direct property
c. Why might the public REIT market be a leading indicator of the private real estate asset market?