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The Substitutability of Real Estate Assets

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  • Diery Seck
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    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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    Bibliographic 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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    Cited by:
    1. Sichong Chen, 2008. "Exploring the driving force and price adjustment of the J-REIT market," Economics Bulletin, AccessEcon, vol. 7(4), pages 1-9.
    2. Armonat, Stefan & Pfnür, Andreas, 2002. "Basel II and the German credit crunch?," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 35585, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    3. Cotter, John & Stevenson, Simon, 2005. "Multivariate Modeling of Daily REIT Volatility," MPRA Paper 3524, University Library of Munich, Germany.
    4. Simon Stevenson & James Young, . "Capital Market Expectations and the London Office Market," Real Estate & Planning Working Papers rep-wp2011-09, Henley Business School, Reading University.
    5. Nafeesa Yunus & J. Hansz & Paul Kennedy, 2012. "Dynamic Interactions Between Private and Public Real Estate Markets: Some International Evidence," The Journal of Real Estate Finance and Economics, Springer, vol. 45(4), pages 1021-1040, November.
    6. Gwangheon Hong & Bong Lee, 2013. "Does Inflation Illusion Explain the Relation between REITs and Inflation?," The Journal of Real Estate Finance and Economics, Springer, vol. 47(1), pages 123-151, July.
    7. repec:ebl:ecbull:v:7:y:2008:i:4:p:1-9 is not listed on IDEAS
    8. Walter Boudry & N. Coulson & Jarl Kallberg & Crocker Liu, 2012. "On the Hybrid Nature of REITs," The Journal of Real Estate Finance and Economics, Springer, vol. 44(1), pages 230-249, January.
    9. 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.
    10. Thomas C. Chiang & Hooi Hooi Lean & Wing-Keung Wong, 2008. "Do REITs Outperform Stocks and Fixed-Income Assets? New Evidence from Mean-Variance and Stochastic Dominance Approaches," Journal of Risk and Financial Management, MDPI, Open Access Journal, vol. 1(1), pages 1-40, December.

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