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Estimating Real Estate's Systematic Risk from Aggregate Level Appraisal-Based Returns

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  • David Geltner

Abstract

This paper estimates the systematic risk (or "beta") of unsecuritized investment grade commercial real estate, as represented by the FRC and PRISA indices of institutional real estate holdings. Systematic risk defined with respect to national consumption is compared to systematic risk defined with respect to the stock market. Also, the risk estimates are explicitly adjusted to account for "smoothing" in appraisal-based aggregate level returns data. The systematic risk of these real estate indices appears to be virtually zero with respect to the stock market, even after correcting for smoothing, but substantially positive with respect to national consumption. Copyright American Real Estate and Urban Economics Association.

Suggested Citation

  • David Geltner, 1989. "Estimating Real Estate's Systematic Risk from Aggregate Level Appraisal-Based Returns," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 17(4), pages 463-481.
  • Handle: RePEc:bla:reesec:v:17:y:1989:i:4:p:463-481
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    References listed on IDEAS

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    10. Douglas T. Breeden & Michael R Gibbons & Robert H. Litzenberger, "undated". "Empirical Tests of the Consumption-Oriented CAPM," Rodney L. White Center for Financial Research Working Papers 7-89, Wharton School Rodney L. White Center for Financial Research.
    11. Breeden, Douglas T & Gibbons, Michael R & Litzenberger, Robert H, 1989. " Empirical Tests of the Consumption-Oriented CAPM," Journal of Finance, American Finance Association, vol. 44(2), pages 231-262, June.
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    Cited by:

    1. Patric H. Hendershott, 1997. "Uses of equilibrium models in real estate research," Journal of Property Research, Taylor & Francis Journals, vol. 14(1), pages 1-13, January.
    2. Robert Edelstein & Daniel Quan, 2006. "How Does Appraisal Smoothing Bias Real Estate Returns Measurement?," The Journal of Real Estate Finance and Economics, Springer, vol. 32(1), pages 41-60, February.
    3. Benefield, Justin D. & Anderson, Randy I. & Zumpano, Leonard V., 2009. "Performance differences in property-type diversified versus specialized real estate investment trusts (REITs)," Review of Financial Economics, Elsevier, vol. 18(2), pages 70-79, April.
    4. K.W. Chau, 1997. "Political Uncertainty and the Real Estate Risk Premiums in Hong Kong," Journal of Real Estate Research, American Real Estate Society, vol. 13(3), pages 297-316.
    5. Shimizu, Chihiro, 2014. "How Are Property Investment Returns Determined? : Estimating the Micro-Structure of Asset Prices, Property Income, and Discount Rates," HIT-REFINED Working Paper Series 12, Institute of Economic Research, Hitotsubashi University.
    6. repec:eee:jimfin:v:82:y:2018:i:c:p:120-140 is not listed on IDEAS
    7. David M. Geltner & Richard A. Graff & Michael S. Young, 1994. "Random Disaggregate Appraisal Error in Commercial Property: Evidence from the Russell-NCREIF Database," Journal of Real Estate Research, American Real Estate Society, vol. 9(4), pages 403-420.
    8. Joseph L. Pagliari, Jr. & James R. Webb & Todd A. Canter & Frederich Lieblich, 1997. "A Fundamental Comparison of International Real Estate Returns," Journal of Real Estate Research, American Real Estate Society, vol. 13(3), pages 317-348.
    9. Christian Weistroffer & Steffen Sebastian, 2015. "The German Open-End Fund Crisis – A Valuation Problem?," The Journal of Real Estate Finance and Economics, Springer, vol. 50(4), pages 517-548, May.
    10. Terry V. Grissom & James R. DeLisle, 1999. "The Analysis of Real Estate Cycles, Regime Segmentation and Structural Change Using Multiple Indices (or A Multiple Index Analysis of Real Estate Cycles and Structural Change)," Journal of Real Estate Research, American Real Estate Society, vol. 18(1), pages 97-130.
    11. David M. Geltner, 1993. "Estimating Market Values from Appraised Values without Assuming an Efficient Market," Journal of Real Estate Research, American Real Estate Society, vol. 8(3), pages 325-346.
    12. Jim Clayton, 1998. "Further Evidence on Real Estate Market Efficiency," Journal of Real Estate Research, American Real Estate Society, vol. 15(1), pages 41-58.
    13. Robert E. Hall & Susan E. Woodward, 2007. "The Incentives to Start New Companies: Evidence from Venture Capital," NBER Working Papers 13056, National Bureau of Economic Research, Inc.
    14. James R. Webb & K.W. Chau & L.H. Li, 1997. "Past and Future Sources of Real Estate Returns in Hong Kong," Journal of Real Estate Research, American Real Estate Society, vol. 13(3), pages 251-272.
    15. S. Michael Giliberto, 1992. "The Allocation of Real Estate to Future Mixed-Asset Institutional Portfolios," Journal of Real Estate Research, American Real Estate Society, vol. 7(4), pages 423-432.
    16. Julian Diaz, III, 1997. "An Investigation into the Impact of Previous Expert Value Estimates on Appraisal Judgment," Journal of Real Estate Research, American Real Estate Society, vol. 13(1), pages 57-66.
    17. Colin Lizieri & Gianluca Marcato & Paul Ogden & Andrew Baum, 2012. "Pricing Inefficiencies in Private Real Estate Markets Using Total Return Swaps," The Journal of Real Estate Finance and Economics, Springer, vol. 45(3), pages 774-803, October.
    18. Patric H. Hendershott & Thomas G. Thibodeau & Halbert C. Smith, 2009. "Evolution of the American Real Estate and Urban Economics Association-super-1," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 37(4), pages 559-598.
    19. Graeme Newell & James R. Webb, 1996. "Assessing Risk for International Real Estate Investments," Journal of Real Estate Research, American Real Estate Society, vol. 11(2), pages 103-116.
    20. repec:eee:finsta:v:31:y:2017:i:c:p:167-185 is not listed on IDEAS
    21. Deng, Yongheng & McMillen, Daniel P. & Sing, Tien Foo, 2014. "Matching indices for thinly-traded commercial real estate in Singapore," Regional Science and Urban Economics, Elsevier, vol. 47(C), pages 86-98.

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