Real Estate : NAREIT / NCREIF & Equity Market Return

CFAI text, Vol 5, P.18~19 (Reading 36) In 3.2.2 Historical Performance 1st paragraph on P.18 : …the “hedged” REIT return series has been purged of its overall EQUITY MARKET RETURN COMPONENTS, as represented by the S&P Index… In 2nd paragraph on P.19 : … This suggests the presence of a residual EQUITY COMPONENTS in the hedged NARAIT Index that could be related to small-cap stocks, be simply unique to REITs, or be both… Can anyone advise why these Indices have EQUITY COMPONENTS which are related to stocks market in them ?

I covered that section yesterday and interpreted the “equity component” of REITs as the price-influencing characteristics of the REIT that result from it being traded publicly (e.g. liquidity, demand, volatility, etc…)

NAREIT - it is related to indexes of REIT companies on the NYSE or American Stock Exchange - so it is an equity Stock Index. When Index goes up - the Stock is going up. So this is the equity component in the index - and as a result it is highly correlated with the Stock Market. (This is the bias in using the NAREIT).

CarpeCFALII Wrote: ------------------------------------------------------- > I covered that section yesterday and interpreted > the “equity component” of REITs as the > price-influencing characteristics of the REIT that > result from it being traded publicly (e.g. > liquidity, demand, volatility, etc…) Yeap, that’s how I interpret the hedged index as well…seems to be making sense…although who knows…