Date of Completion

6-28-2013

Embargo Period

6-20-2013

Keywords

Equity REITs, cost of capital, cost of equity

Major Advisor

Dr. Carmelo Giaccotto

Associate Advisor

Dr. Chinmoy Ghosh

Associate Advisor

Dr. Gim Seow

Field of Study

Business Administration

Degree

Doctor of Philosophy

Open Access

Open Access

Abstract

This dissertation consists of three essays examining issues related to Equity Real Estate Investment Trusts (REITs) cost of capital. In the first essay, we examine the cost of capital characteristics of Equity REITs using firm-level data utilizing both single-factor and multi-factor cost of capital model. We find that while the evidences of time-varying risk loadings are inconclusive, the choice of estimation method in distant forecast appears to play a role. In addition, we confirm that there is a wide variation in cost of equity estimates at the firm level. In the second essay, we model market risk loading explicit dynamic over time. We find that explicit modeling of market risk loading obtains a lower distant forecast error for about half of our sample. In addition, within the subset of firms that obtains an improved forecast, we find that a random walk market risk dynamic obtains the lowest distant forecast error. In the third essay, we incorporate cross-sectional information to improve firm-level cost of capital estimates. Our results suggest that incorporating cross-sectional information have only a mild effect on cost of capital uncertainty. At the same time however, incorporating cross-sectional information appears to lower multi-factor cost of capital estimates and weakens Equity REITs size and book-to-market exposure at the firm level.

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