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On Demand: Cross-Country Evidence From Commercial Real Estate Asset Markets

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Author Info
Steven H. Ott () (Belk College of Business and Administration University of North Carolina at Charlotte)
Timothy J. Riddiough () (School of Business University of Wisconsin – Madison)
Ha-Chin Yi () (McCoy College of Business Administration Texas State University-San Marcos)
Abstract

Using over 25 years of quarterly U.S. and Japanese time series data, this paper examines the determinants of demand for an important class of real assets: commercial real estate. We specify a structural model of market equilibrium that considers direct effects of real investment on built asset price. Our empirical findings are consistent across countries and produce several new results. First, we find that real investment exerts a significant positive direct effect on asset price, which in turn feeds back to impact investment decisions. Second, idiosyncratic risk is found to be strongly positively related to asset price, and to complement supply effects. Third, systematic risk is priced as expected, where the strength of the relation between asset price and systematic risk is found to be higher than in previous studies of capital asset prices. Fourth, lagged values of price determinants (of up to two years) are consistently important in real asset demand estimation. Alternative explanations for our findings are analyzed and discussed. Implications for asset pricing model specification and interpretation are also considered.

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Publisher Info
Article provided by Asian Real Estate Society in its journal International Real Estate Review.

Volume (Year): 11 (2008)
Issue (Month): 1 ()
Pages: 1-37
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:ire:issued:v:11:n:01:2008:p:1-37

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Postal: Asia Real Estate Society, 51 Monroe Street, Plaza E-6, Rockville, MD 20850, USA
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Web page: http://www.asres.org/

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Postal: Asian Real Estate Society, 51 Monroe Street, Plaza E-6, Rockville, MD 20850, USA
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Web: http://www.asres.org/

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Related research
Keywords: equity REIT; IPO; interest-rate sensitivity; risk-adjusted return performance;

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Find related papers by JEL classification:
L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

References listed on IDEAS
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    Other versions:
  19. Daniel C. Quan & Sheridan Titman, 1999. "Do Real Estate Prices and Stock Prices Move Together? An International Analysis," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 27(2), pages 183-207. [Downloadable!] (restricted)
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