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Pricing of real estate specific market risks for worldwide 66 countries

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  • Lieser, Karsten

    ()
    (IESE Business School)

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    Abstract

    I address the construction of hurdle rates for 66 countries that adequately compensate investors for the real estate specific market risks involved when investing, operating and exiting a foreign market. To estimate the market-based framework, I run random effect panel regressions for a period of six years from 2004-2009 of IPD direct property market returns and an integral and newly developed composite index that takes into account all real estate market and investment specific conditions. The regression results provide direct evidence that an increased perception of risk and instability in the countries' socio-economic conditions and institutional frameworks significantly imply higher investors' return expectations. Finally, the results provide international investors with an absolute hurdle rate that prices risks and opportunities of national real estate markets and guides investors in selecting a core, value-add, or opportunistic investment strategy.

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    Bibliographic Info

    Paper provided by IESE Business School in its series IESE Research Papers with number D/940.

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    Length: 14 pages
    Date of creation: 05 Nov 2011
    Date of revision:
    Handle: RePEc:ebg:iesewp:d-0940

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    Postal: IESE Business School, Av Pearson 21, 08034 Barcelona, SPAIN
    Web page: http://www.iese.edu/
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    Related research

    Keywords: Hurdle Rate; Country Risk; Real Estate Investments; International Asset Allocation;

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    1. Tom G. Geurts & Austin J. Jaffe, 1996. "Risk and Real Estate Investment: An International Perspective," Journal of Real Estate Research, American Real Estate Society, vol. 11(2), pages 117-130.
    2. Falkenbach Heidi, 2009. "Market Selection for International Real Estate Investments," International Journal of Strategic Property Management, De Gruyter Open, vol. 13(4), pages 299-308, December.
    3. Daniel Hoechle, 2007. "Robust standard errors for panel regressions with cross-sectional dependence," Stata Journal, StataCorp LP, vol. 7(3), pages 281-312, September.
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