Abstract
This study examines the linkage between mortgage Real Estate Investment Trust (REIT) returns and the private real estate factor. The results show that real estate sensitivities of mortgage REITs are time varying and have been significant since 2000. Furthermore, home-financing mortgage REITs appear to be more sensitive to real estate market fluctuations than commercial-financing mortgage REITs are. This differential sensitivity is consistent with the notion that the default risk and the prepayment risk associated with residential mortgage loans are more closely related to real estate market conditions than are commercial mortgage loans.
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