In this research we examine the effect of Fair Value Accounting (FVA) on Equity Real Estate Investment Trusts (REITs) returns by using Fama-French three factor model for two periods: from January 1996 to December 2001 (Pre FVA Period) and from January 2003 to December 2005 (FVA Period). There are debates about positive and negative effects of FVA in the past decades, but little has been said about effects that implementation of FVA could have on Equity REITs returns.
We find that FVA implementation doesn’t substantially influence size effect in Equity REITs market. In both periods before and after FVA implementation the coefficients of SMB factor are positive and statistically significant. Small Equity REITs significantly outperform big Equity REITs before and after implementation of FVA. However, we conclude that implementation of FVA influences value effect in Equity REITs market. REITs with high book-to-market equity ratio have higher returns only in Pre FVA Period. In FVA Period REITs with high book-to-market equity ratio have lower returns. However, this result is not statistically significant. Also, if coefficients of independent variables are equal to zero, Equity REITs returns index substantially decreases changing its sign since implementation of FVA as was expected. However, the results for this factor are not statistically significant for both periods.
It is interesting that our results differ from those of Chang and Chang (2007) analyzing Equity REITs returns in a period from 1996 to 2006. We find that results for constant, MER, SMB and HML factors are considerably different from Chang and Chang (2007) when we analyze periods before and after FVA implementation separately.

In this research we examine the effect of Fair Value Accounting (FVA) on Equity Real Estate Investment Trusts (REITs) returns by using Fama-French three factor model for two periods: from January 1996 to December 2001 (Pre FVA Period) and from January 2003 to December 2005 (FVA Period). There are debates about positive and negative effects of FVA in the past decades, but little has been said about effects that implementation of FVA could have on Equity REITs returns.
We find that FVA implementation doesn’t substantially influence size effect in Equity REITs market. In both periods before and after FVA implementation the coefficients of SMB factor are positive and statistically significant. Small Equity REITs significantly outperform big Equity REITs before and after implementation of FVA. However, we conclude that implementation of FVA influences value effect in Equity REITs market. REITs with high book-to-market equity ratio have higher returns only in Pre FVA Period. In FVA Period REITs with high book-to-market equity ratio have lower returns. However, this result is not statistically significant. Also, if coefficients of independent variables are equal to zero, Equity REITs returns index substantially decreases changing its sign since implementation of FVA as was expected. However, the results for this factor are not statistically significant for both periods.
It is interesting that our results differ from those of Chang and Chang (2007) analyzing Equity REITs returns in a period from 1996 to 2006. We find that results for constant, MER, SMB and HML factors are considerably different from Chang and Chang (2007) when we analyze periods before and after FVA implementation separately.

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