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The Substitutability of Real Estate Assets

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Author Info
Diery Seck
Abstract

This paper investigates the degree of substitutability between securitized real estate assets and real estate assets whose prices are appraisal-based. Given the insensitivity of unsecuritized asset's returns to the returns on stock market indices, equilibrium asset pricing models cannot be used to compare these two avenues of investment. Two assets are deemed substitutable if the information sets underlying unbiased, minimum error variance estimates of their pricing parameters are identical. The empirical evidence shows that the prices of the transactions-based assets-real estate investment trusts and the stock price index of the home building industry-follow a random walk while the prices of the appraisal-based assets-FRC/NCREIF indices-do not. The variance decompositions of the vector autoregressions also show that the level of economic activity helps predict the price indices of appraisal-based assets while the stock market index and the term structure of interest rates are better predictors of the prices of transactions-based assets Copyright American Real Estate and Urban Economics Association.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/1540-6229.00681
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Publisher Info
Article provided by American Real Estate and Urban Economics Association in its journal Real Estate Economics.

Volume (Year): 24 (1996)
Issue (Month): 1 ()
Pages: 75-95
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Handle: RePEc:bla:reesec:v:24:y:1996:i:1:p:75-95

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  1. Jaroslaw Morawski & Heinz Rehkugler & Roland Füss, 2008. "The nature of listed real estate companies: property or equity market?," Financial Markets and Portfolio Management, Springer, vol. 22(2), pages 101-126, June. [Downloadable!] (restricted)
  2. John Cotter & Simon Stevenson, 2006. "Multivariate Modeling of Daily REIT Volatility," The Journal of Real Estate Finance and Economics, Springer, vol. 32(3), pages 305-325, May. [Downloadable!] (restricted)
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