CFA Level I · CFA Level I Exam · Real Estate and Infrastructure
Compared with direct ownership of commercial property, an investment in publicly traded REIT shares is most likely characterized by:
REIT shares are most likely more liquid than direct property and have daily price discovery because they trade on exchanges. Direct property is appraised, which smooths returns, and REITs usually show higher correlation with equities, not lower.
- AGreater liquidity and daily price discoveryCorrect
- BLower correlation with the broader equity market
- CAppraisal-based valuation that smooths reported returns
Explanation
REIT shares trade on exchanges, giving daily pricing and high liquidity. Direct property is illiquid and appraisal-based, which smooths returns. REITs tend to be more correlated with equities, not less, because they are priced by the stock market.
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