Local Beta: Has Local Real Estate Market Risk Been Priced in REIT Returns?

Abstract This paper studies the pricing of risk associated with location assets. The local real estate market is measured by ‘local beta’, which combines systematic property markets and allocation strategy firms. empirical results confirm a higher equity return for firm exposure to most volatile markets, particularly REITs are more geographically concentrated. For highly diversified assets, risks not reflected in REIT returns. those concentrated one standard deviation increase beta will lead 4.7% annual return. Investors can use REITs’ as an information tool construct long-short investment portfolio firms achieve significant non-market performance 4.9% per annum.