Purpose – Aims to explain the rationale for producing an issue on the topic of real estate investing
and how these articles fit together.
Design/methodology/approach – Essay format.
Findings – Real estate is probably the largest category of assets for investors and the works in this
issue will assist in the decision making processes of real estate investors.
Research limitations/implications – Each of these papers covers only a limited topic and more
research in the area is needed.
Practical implications – These papers could change how asset allocation studies are conducted;
allow investors to make superior returns around the turn of the month on real estate investment
trusts (REITs); alter the capital structure of REITs; seek out real estate mutual funds with higher
management fees (because they were associated with higher returns); invest directly in real estate
Originality/value – All five of these papers either examine areas that have not been reviewed by
researchers previously, or find results that may result in different investment decisions.
Keywords Real estate, Assets management, Investments
Paper type Viewpoint
This issue of Managerial Finance is dedicated to the study of real estate investments.
Real estate accounts for approximately two-thirds of the national wealth of the United
States and over 25 per cent of the gross domestic product. Experts attribute about 25
per cent of the worth of publicly traded corporations to their investments in real estate.
Recent studies by the Census Bureau and other organizations have identified real estate
as the largest holding for a large percentage of households in the United States. Clearly,
issues surrounding real estate investing are of considerable interest to many parties
including individual investors, institutional investors and even corporations who own
real estate as part of their operations. I believe that these and other parties will find the
articles in this issue to be notably useful in their real estate decision making.
In the first article in this issue, Waggle and Moon (2006) examine how using various
return intervals affect optimal portfolio allocation decisions where the portfolio may
contain real estate investment trusts (REITs). Much asset allocation research has been
published but different studies often arbitrarily select different return intervals.
Waggle and Moon (2006) show, at least with regards to REITs, that changing the return
period from an annual interval to semiannual, quarterly or monthly can dramatically
change the optimal portfolio allocation recommendations in substantial part due to
systematically understated annual volatility. By challenging the haphazard selection of
return intervals, the Waggle and Moon (2006) work may change how asset allocation
decisions are made in the future.
The second paper by Compton et al. (2006), examines both equity and mortgage
REIT returns around the turn of the month (TOM). We employ a battery of both
parametric and nonparametric statistical tests that address the concerns of
distributional violations raised in previous studies. The results reveal dramatic and
significant positive returns on REIT stocks around the TOM. The results may indicate
The current issue and full text archive of this journal is available at
an opportunity for investors to help bring efficiency to the market by making and
taking profits in REIT stocks around the TOM.
Casey et al. (2006) scrutinize the capital structure of REITs in the third paper of this
issue. Using REITs as a proxy for nontax-driven capital structure decisions (since they
avoid corporate taxation by paying out most of their earnings), they find evidence that
REITs’ capital structures are influenced by various market factors such as price-tobook ratios, institutional ownership and price-to-cash flow ratios. Further, they find
that different types of REITs utilize different capital structures. Managers and
investors may be able to use the information in this article to optimize REIT values.
The fourth paper by Philpot and Peterson (2006) examines how the characteristics of
the managers of real estate mutual funds are associated with the funds’ performances,
risk levels and management fees. Contrary to much research using non-real estate mutual
funds, Philpot and Peterson (2006) find that real estate funds with higher management
fees produce higher fund returns. They also find that team-managed funds have lower
returns and that there is little evidence of returns being positively related to a manager’s
experience or certification. The Philpot and Peterson (2006) results differ in several ways
from those most commonly found by researchers studying the broad mutual fund
industry and thus researchers and investors in the specialized real estate mutual funds
may find their work to be quite informative and useful.
Finally, Nelson (2006) explores the topic of direct real estate investing which, despite
the popularity and high profile of indirect investing vehicles such as REITs, is still the
most common avenue for individuals and institutions to add real estate exposure to their
portfolios. Nelson (2006) discusses the comparative advantages and problems of direct
real estate investing vis-a`-vis indirect investing. He then takes us through an actual
investment case involving a mixed use building in the upper Midwestern United States.
Many thanks go to Dr Richard Dobbins for offering me the opportunity to assemble
this issue of Managerial Finance. Additional thanks go to Michael Casey for acting as
Special Editor on my article with William Compton and Robert Kunkel. Finally, I
especially want to thank the numerous anonymous reviewers who gave of their time
and effort to read and screen the submissions for this issue. They identified the best
papers among the works submitted and then improved the papers in this issue by
recognizing problems and suggesting ways for the authors to improve their articles.
Casey, M., Sumner, G. and Packer, J. (2006), ‘‘REIT capital structure: is it market imposed?’’,
Managerial Finance, Vol. 32.
Compton, W., Kunkel, R. and Johnson, D. (2006), ‘‘The turn-of-the-month effect in real estate
investment trusts (REITs)’’, Managerial Finance, Vol. 32.
Nelson, W. (2006), ‘‘The strong building: a case study in direct investment’’, Managerial Finance,
Philpot, J. and Peterson, C. (2006), ‘‘Manager characteristics and real estate mutual fund returns,
risk and fees’’, Managerial Finance, Vol. 32.
Waggle, D. and Moon, G. (2006), ‘‘Mean-variance analysis with REITs in mixed asset portfolios:
the return interval and the time period used for the estimation of inputs’’, Managerial
Finance, Vol. 32.
Type of service: Academic Paper Writing
Type of assignment: Research Paper
Number of sources: 3
Academic level: Master’s
Paper format: APA
Line spacing: Double
Language style: US English