The substitutability of REITs and value stocks

Recent evidence has suggested a strong relationship between Equity Real Estate Investment Trust (REIT) and value stocks. This article examines in depth not only the similarities in performance sectors but also the driving forces in the two sectors and the extent to which they are substitutable. The results indicate that while strong linkages are evident, there remain sufficient differences in both return behaviour and their driving forces for the two sectors to retain a level of distinctiveness. This would imply that diversification opportunities still remain and that REITs can still add value to an equity portfolio containing value stocks.