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International Real Estate Returns: A Multifactor, Multicountry Approach

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  • Shaun A. Bond
  • G. Andrew Karolyi
  • Anthony B. Sanders

Abstract

We examine the risk and return characteristics of publicly traded real estate companies from 14 countries over the period 1990 to 2001. Our data are monthly country‐level commercial real estate indexes constructed by the European Public Real Estate Association (EPRA). We find substantial variation in mean real estate returns and standard deviations across countries. Using various global‐ and country‐level factor models, we find that there is evidence of a strong global market risk component, measured relative to the Morgan Stanley Capital International world index, in most countries. However, even after controlling for the effects of global market risk, an orthogonalized country‐specific market risk factor is highly significant, especially for real estate indexes in Asia–Pacific markets. We find that a country‐specific value risk factor has some explanatory power in addition to the country‐specific market factor, but U.S.‐based market, value and size risk factors do not provide any additional explanatory power. These findings imply that the international diversification opportunities with real estate companies are more complex than previously thought.

Suggested Citation

  • Shaun A. Bond & G. Andrew Karolyi & Anthony B. Sanders, 2003. "International Real Estate Returns: A Multifactor, Multicountry Approach," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 31(3), pages 481-500, September.
    • Handle: RePEc:bla:reesec:v:31:y:2003:i:3:p:481-500
    DOI: 10.1111/1540-6229.00074
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    1. Bradford Case & William Goetzmann & K. Rouwenhorst, 1999. "Global Real Estate Markets: Cycles And Fundamentals," Yale School of Management Working Papers ysm20, Yale School of Management, revised 01 Jan 2001.
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    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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