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The Impact of Market Imperfections on Real Estate Returns and Optimal Investor Portfolios

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  • Crocker H. Liu
  • Terry V. Grissom
  • David J. Hartzell
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    Abstract

    This study investigates the consequences of several imperfections associated with real estate markets on pricing and optimal investor portfolios from a CAPM context. CAPM assumptions are relaxed to recognize illiquidity, the consumption and investment attributes of owner-occupied housing, and a mildly segmented market structure. The study finds that relaxing the CAPM assumptions lead to a separate pricing paradigm for financial assets, income-producing real estate and owner-occupied housing respectively, that a "dividend effect" arises for real estate as the result of illiquidity, and that illiquidity reduces the extent to which investors hold real estate in their portfolios. Copyright American Real Estate and Urban Economics Association.

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    Bibliographic Info

    Article provided by American Real Estate and Urban Economics Association in its journal Real Estate Economics.

    Volume (Year): 18 (1990)
    Issue (Month): 4 ()
    Pages: 453-478

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    Handle: RePEc:bla:reesec:v:18:y:1990:i:4:p:453-478

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    Cited by:
    1. Zahra Saderion & Barton Smith & Charles A. Smith, 1994. "An Integrated Approach to the Evaluation of Commercial Real Estate," Journal of Real Estate Research, American Real Estate Society, vol. 9(2), pages 151-168.
    2. Patric H. Hendershott, . "Uses of Equilibrium Models in Real Estate Research," Research in Financial Economics 9612, Ohio State University.

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