Applying the Fama and French three-factor model to analyze risk/reward in the Spanish REITs: an ARDL approach

Zhenyu Su, Paloma Taltavull*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

5 Citations (Scopus)


Purpose: This paper aims to analyse the risk and excess returns of the Spanish real estate investment trusts (S-REITs) using various methods, though focusing primarily on the Fama-French three-factor (FF3) model, over the period from 2007Q3 to 2017Q2. Design/methodology/approach: The autoregressive distributed lag model is used for the empirical analysis to test long-term stable relationships between variables. Findings: The findings indicate that the FF3 model is suitable for the S-REITs market, better explaining the S-REITs’ returns variation than the traditional single-index capital asset pricing model (CAPM) and the Carhart four-factor model. The empirical evidence is reasonably consistent with the FF3 model; the values for the market, size and value are highly statistically significant over the analysis period, with 68.7% variation in S-REITs’ returns explained by the model. In the long run, the market factor has less explanatory power than the size and value factors; the positive long-term multiplier of the size factor indicates that small S-REIT companies have higher returns, along with higher risk, while the negative multiplier of the value indicator suggests that S-REITs portfolios prefer to allocate growth REITs with low book-to-market ratios. The empirical findings from a modified FF3 model, which additionally incorporates Spain’s gross domestic product (GDP) growth rate, two consumer price index (CPI) macro-factors and three dummy variables, indicates that GDP growth rate and CPI also affect S-REITs’ yields, while investment funds with capital calls have a small influence on S-REITs’ returns. Practical implications: The regression results of the standard and extended FF3 model can help researchers understand S-REITs’ risk and return through a general stock pattern. Potential investors are given more information to consider the new Spanish investment vehicle before making a decision. Originality/value: The paper uses standard techniques but applies them for the first time to the S-REIT market.

Original languageEnglish
Pages (from-to)187-206
Number of pages20
JournalJournal of European Real Estate Research
Issue number2
Publication statusPublished - 2021


  • CAPM
  • Capital asset pricing model (CAPM)
  • Carhart model
  • Fama and French model
  • Fama-French three-factor (FF3) model
  • Real estate investment trusts (REITs)
  • Risk and returns
  • Sociedades cotizadas de inversion en el mercado inmobiliario (SOCIMIs)
  • Spain
  • autoregressive distributed lag (ARDL)


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