Skip to content

CFA Level I · CFA Level I Exam · Real Estate and Infrastructure

An investor compares a REIT index with an appraisal-based private real estate index over the same period. Which statement about their reported performance is most likely accurate?

The REIT index will show higher volatility and higher correlation with equities. REITs trade daily at market prices, so returns reflect equity market sentiment immediately. Appraisal-based indexes are smoothed and lag the market, which lowers both reported volatility and correlation with equities.

  1. AThe REIT index will show higher volatility and a higher correlation with equitiesCorrect
  2. BThe appraisal-based index will show higher volatility and a higher correlation with equities
  3. CBoth will show identical volatility because they hold the same underlying properties

Explanation

REIT prices are set continuously in the stock market, so returns are more volatile and move with equities. Appraisal-based returns are smoothed and lag, giving lower volatility and correlation. The two series differ even with similar underlying properties.

Did you get it right without looking?

One question tells you little. A timed set on Real Estate and Infrastructure shows your real accuracy, how long you take and where you lose marks.

Practise Real Estate and InfrastructureFree diagnostic mock

More Real Estate and Infrastructure questions