Investing in Real Estate Investments Trusts (REITs) Provides Performance and Risk Diversification Benefits: A Malaysia and Japan Analysis

David Ching Yat Ng,Shubatra Shanmugaretnam,Fitriya Binti Abdul Rahim,Teck Chai Lau

doi:10.6007/ijarbss/v11-i6/10172

David Ching Yat Ng, Shubatra Shanmugaretnam + Show 2 more

Open Access

https://doi.org/10.6007/ijarbss/v11-i6/10172

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Abstract

This study analyses the effectiveness of risk diversification and investment performance between M-REITs’ and J-REITs’ by comparing the diversification measures (unsystematic risk divided by total risk and one-minus R squared) including their respective Sharpe Ratio, Treynor Ratio and Jensen’s Alpha calculated on each REITs. The study period for M-REITs’ and J-REITs extends from 2008 to 2017. Results indicate that M-REITs’ performed better than J-REITs’ in terms of Sharpe ratio, Treynor ratio, and Jensen’s Alpha. Total risk of J-REITs’ are higher than M-REITs’. The Beta values for both M-REITs’ and J-REITs’ are less than one, implying that both categories of REITs are less risky than the market index. M-REITs’ have lower R-Squared values than S-REITs’, which suggest that M-REITs’ are poorly diversified against J-REITs’ and therefore, M-REITs’ have more diversification opportunities. The diversification measures computed for M-REITs’ are higher than J-REITs’ and would imply that M- REITs’ have better rate of returns if M-REITs’ diversify their risk (higher risk diversification benefits). The findings from this study aims to help investors to make better investment decision when investing in M-REITs’ and J-REITs’. The findings from this study aims to assist investors determine better investment decisions when considering investing in M-REITs’ and J-REITs’.

Highlights

This research’s main focus is to compare/investigate the performance and risk diversification benefits of Real Estate Investment Trust (REITs) between Malaysia andJapan
The average beta generated in the J-REITs’, approximately 0.84143, which is greater than M-REITs’ beta value of 0.21224
From the M-REITs’ perspective the findings have shown that the volatility of each M-REIT against the market movement is relatively low compared to J-REITs as it contributes a much lower level of systematic risk

Summary

Introduction

This research’s main focus is to compare/investigate the performance and risk diversification benefits of Real Estate Investment Trust (REITs) between Malaysia andJapan. Overview Previous studies indicate that there is a general consensus that REITs worldwide largely produce positive returns and outperform their national indices, according to a study of 204 REITs from different countries over a 20-year period by Brounen and de Koning (2013). This is further corroborated by Moss et al (2015), who found that on a global scale, investing in REITs can be beneficial to both dedicated REIT-only portfolios and multi-asset portfolios in the form of enhanced returns, diversification and reduced risk. There was evidence to suggestthat this may not be isolated solely to developing countries with emerging economies like Nigeria, as a study conducted by Ng et al (2018) showed that even some REITs in Singapore, a well-developed high-income country can underperform

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