An Evaluation Of The Risk To Securitize The Real Estate Investment Trusts In Taiwan

Until September 2008,an amount more than NT$ 150 billions had been issued since Taiwan announced its Real Estate Securitization Ordinance in July 23, 2003. As most studies on the Taiwan Real Estate Securitization focus on the analysis of its regulations and law-making, there are few reports on the risk assessment of investment. In addition, it is commonly known that the"heavy-tail phenomena"usually occur in the normal distribution of the investment return for other financial assets. Nevertheless, our knowledge at this moment about the tail distribution is so limited and not enough for us to modify the market situation. Consequently, it makes investors difficult to manage the investment risk. In this paper, the author tries to assess the risk of the Taiwan Real Estate Securitization. Both measures, Historical Volatility, a variance-covariance method and GPD Detect Common Value model, an Extreme Value model, are used in this research. A comparison analysis of the findings from two methods is also obtained to evaluate the risk of REITs.10 Taiwanese REITs are selected for the study. They are categorized into two groups: the investment overseas and investment in Taiwan. All the data are collected from September 22, 2006 to September 30, 2008, a period of totally 500 transaction days. The daily R.O.I. is used to score the investment performance in VaR model. It is assumed that a total amount of NT$ 20 million is invested and equally assigned to 10 REITs, which means NT$ 2 million each. All the potential losses at 3 different confidence levels, 95%, 97.5% and 99%, are calculated.The statistic obtained from this research indicates the heavy-tail phenomenon appears in the table(s). Such an occurrence can be predicted by the Extreme Value model, but not by the Variance-Covariance method.