The evidence of the beta anomaly in the European REIT market

Abstract

This paper finds empirical evidence of the beta anomaly in the European REIT market in the period 2012 – 2021. The alpha of a low minus high beta strategy is positive and statistically significant which can interpret that the low beta REITs have a higher risk-adjusted return than high beta REITs. To examine the explanation behind the beta anomaly, the controlling variables which may cause the beta anomaly including the lottery-like stock return factor, the skewness factor, and the institutional ownership factor are added into the Fama-French 3-factor model. For the result, only the institutional ownership factor which refers to the leverage constraint hypothesis shows a significant relation with REIT returns. To examine that the beta anomaly is a demonstration of the leverage constraint hypothesis, the result of pooled OLS regression shows a significant relationship between REIT betas and institutional ownership.