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Asset Pricing Model with Short-Sale Restrictions: The Case of Asian Property Markets

Author

Listed:
  • Tsong-Yue Lai

    (Department of Finance, California State University, Fullerton, CA 92634,USA)

  • Hin Man Mak

    (Department of Applied Mathematics, Hong Kong Polytechnic University, Hunghom, Kowloon, Hong Kong)

  • Ko Wang

    (Chinese University of Hong Kong, Shatin, Hong Kong and Professor of Real Estate, Department of Finance, California State University, Fullerton, CA 92634, USA)

Abstract

Asset pricing models have been used extensively in the recent real estate literature to evaluate real estate performance and estimate required rates of return of properties. In this paper, we show that the CAPM and its variants will derive a biased result when short sales are not allowed in the market. This problem is particularly serious for Asian property markets where investors are not able to short sell real estate indexes as a substitute for short selling real properties. We also demonstrate that the bias resulting from the short-sale constraint is related to the supply-and-demand conditions in the local market.

Suggested Citation

  • Tsong-Yue Lai & Hin Man Mak & Ko Wang, 2001. "Asset Pricing Model with Short-Sale Restrictions: The Case of Asian Property Markets," International Real Estate Review, Global Social Science Institute, vol. 4(1), pages 43-56.
    • Handle: RePEc:ire:issued:v:04:n:01:2001:p:43-56
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Asian property markets; asset pricing model; short-sale restriction;
    All these keywords.

    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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