Empirical examination of REITs in Turkey: an emerging market perspective

Abstract

Purpose - The aim of this paper is to investigate the risk-return relationship of REITs listed on the Istanbul Stock Exchange (ISE) in order to assess the risk and to find some empirical results for investors within the framework of modern portfolio theory (MPT) using the standard version of the capital asset- pricing model (CAPM) and the single index model (SIM) over the period January 2002-June 2008. Design/methodology/approach - Time series cross-sectional regression and structural literature review are employed. Findings - Results indicate that linearity assumption for both the CAPM and the SIM are rejected. It should be emphasized that the econometrical specification exposed the weaknesses of t-test methodology for testing coefficients of regression due to the non-normality of residuals. Originality/value - Understanding of risk and its resultant impact on the returns and evaluation of risk-return relationship is extremely important for investors. In this regard real estate investment trusts (REITs) as indirect investment instruments are increasingly becoming an important part of investors' diversified portfolios to lessen the risk. The study is the first attempt to explore the structure of REITs in Turkey as an emerging market.