5.1 Summary of findings
The risk and return characteristics of hotel REITs and C-corps were identified by
estimating the single-factor CAPM and Fama-French three-factor models. In general,
there was little evidence that hotel REITs have significantly different risk-return
characteristics from hotel C-corps. A market portfolio had a significantly positive effect
on the returns of both hotel REITs and C-corps. The size and book-to-market factors in
common stock also had significant explanatory power for returns on hotel REITs and
C-corps.
The risk-adjusted performances of hotel REITs and C-corps were estimated by an
intercept of the single-factor CAPM and the Fama-French three factor model. Again,
there was little evidence that the performance of hotel REITs differed significantly
from that of hotel C-corps. None of the intercepts from the hotel REIT and C-corp
regressions were statistically significant, and the intercepts from the hotel C-corp
regressions were similar to those from the hotel REIT regressions. This similarity
implies that both hotel REITs and C-corps performed similarly, on a risk-adjusted
basis, to the market portfolio during the period 2000-2009. This finding is consistent
with the findings of Kim et al. (2002a, b) and Jackson (2009).
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5.2 Implications
This study contributes to the hotel finance literature by identifying the risk-return
characteristics of hotel firms based on a multifactor asset pricing model. Previous hotel
finance studies (e.g. Kim et al., 2002a, b; Jackson, 2009) estimated the sensitivities (beta)
of hotel REIT returns using a single market portfolio, which leaves a greater
proportion of the REIT returns unexplained. By employing a multifactor asset pricing
model for the first time, this study reveals the characteristics of hotel REITs’ returns in
more detail. In particular, this study shows that hotel REITs’ returns are significantly
affected by stock market factors related to size and book-to-market equity ratio.
Moreover, adding the two factors to the single-factor model explains a significantly
greater proportion of the variation in hotel REITs’ returns