Abstract
Estimates from a directional output distance function are used to construct a risk/return frontier that defines the best-practice management technology for Real Estate Investment Trusts (REITs). We model REIT performance as a production process in which each REIT produces a desirable output (return) and an undesirable output (risk) using inputs of managerial effort and financial capital. The results suggest that ignoring the effects of risk yields a management technology that is significantly different from one that incorporates risk. In addition, market valuation is inversely related to inefficiency and directly related to leverage.
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Devaney, M., Weber, W.L. Efficiency, Scale Economies, and the Risk/Return Performance of Real Estate Investment Trusts. J Real Estate Finan Econ 31, 301–317 (2005). https://doi.org/10.1007/s11146-005-2791-5
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DOI: https://doi.org/10.1007/s11146-005-2791-5