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Cross Hedging Effectiveness of Real Estate Securities Exchange Traded Funds

Addae-Dapaah, K; Abdullah, K; (2020) Cross Hedging Effectiveness of Real Estate Securities Exchange Traded Funds. Journal of Real Estate Portfolio Management 10.1080/10835547.2020.1826240. (In press).

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Abstract

We investigate hedging effectiveness of four REIT Exchange Traded Funds in hedging seven real estate securities returns for the United States, Europe, and Asia through R-Squared, hedge ratio, variance reduction (VR) and utility maximization metrics. The analyses cover different full sample and sub-sample periods from 2000 to 2010 (inclusive) to document the performances of the hedge during periods of high and low volatility. The results show that the ETFs were very effective in hedging EREIT and all the sampled real estate securities in Europe and Asia. Second, VECM hedge marginally outperformed OLS hedge. Third, we find that hedging effectiveness evidenced by VR does not necessarily equate to economic viability. Therefore VR must be used together with UIs to determine viability of hedging effectiveness. Finally, given different levels of risk aversion vis-à-vis expected utility, it is advisable/inadvisable to hedge during high/low volatility periods.

Type: Article
Title: Cross Hedging Effectiveness of Real Estate Securities Exchange Traded Funds
DOI: 10.1080/10835547.2020.1826240
Publisher version: https://doi.org/10.1080/10835547.2020.1826240
Language: English
Additional information: This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions.
Keywords: Exchange traded fund, real estate investment trust, equity REIT, mortgage REIT, real estate securities, hedging effectiveness
UCL classification: UCL
UCL > Provost and Vice Provost Offices > UCL BEAMS
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of the Built Environment
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of the Built Environment > The Bartlett School of Planning
URI: https://discovery.ucl.ac.uk/id/eprint/10076495
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