Real estate equities in Asia performed substantially better during the pandemic than their U.S. peers, possibly because Asian real estate firms have prior experience with pandemics.

The full paper is available here.

From the paper:

There are a number of findings. First, the returns of real estate companies experience a sharp decline and a fat-tailed distribution as a result of Covid-19 with large differences across sectors in the US. Second, there are considerable differences in the response of Asian companies as compared to US companies. Although the pandemic originated in China and first spread there before the virus outbreak became a global phenomenon, returns of Asian-based companies were less negatively affected as compared to those in the US. Furthermore, the two regions show strong sector-based divergence in performance as a result of their response to Covid-19. While US real estate companies show strong differences in performance based on the real estate sector they specialize on, little sectoral variation is observed in the Asian region. The sector with significant underperformance during the pandemic is retail in the US. I also assess the effect of Covid-19 risks on returns during the pandemic. While in Asia companies do not vary in their sensitivity to Covid risks across sectors, in the US we see large differences. The factor models incorporating the CRF show that hotel has the highest sensitivity to Covid-19 risks, while in Asia and it is the office sector.

The sensitivity of firms during the Covid-19 period increases for most risk factors in the US. In Asia, I observe that the sensitivity prior to the pandemic is close to zero and becomes largely negative during the first few months of the coronavirus. This suggests that Asian and US firms have very different response to the pandemic which may be partially due to the experience with similar coronaviruses in Asia. Asian real estate companies can provide a good hedge during similar periods of global economic shocks, although their non-market performance is significantly negatively affected.

Finally, Fama–MacBeth regressions show that the main effect of Covid-19 for the cross-section of returns is associated with market risk factors. Again, Asia and US differ in this regard although what is common for both regions is the significant role played by the value factor risk loading indicative of valuation effects dominating during the Covid-19 period. In the US, companies show significantly positive response to the CRF sensitivity indicative while this is not the case in Asia. The relationship between the market factor loadings and returns is positive which points towards a low-risk effect triggered by Covid-19 but not related to sentiment as documented by the insignificant coefficient of the idiosyncratic volatility.