Abstract
We examine whether systematic tail risk premium exists in the cross-section of real estate investment trusts. Using US equity REITs data from 1993 to 2018, we obtain systematic tail risk of REITs by estimating their industrial tail exposure risk (ITER) based on extreme value theory. We find that REITs in highest ITER decile outperforms REITs in lowest ITER decile by 11.5% per annum. The impact of ITER remains significant after controlling for well-kwon firm and return factors. The positive return premium is not explained by traditional systematic tail risk based on left-tail market return. Thus, our results suggest that REITs investors are averse to crash events, especially associated with multiple industries rather than aggregate market alone.
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