Real Estate and the Arbitrage Pricing Theory: Macrovariables vs. Derived Factors
Two empirical models are used to implement the arbitrage pricing theory: the factor loading model (FLM) and the macrovariable model (MVM). This study compares the ability of these two models to explain real estate returns using equity REIT returns as a proxy. Two tests are performed: a comparison of crosssectional adjusted-R2's and the Davidson and Mackinnon test. The results show that while the two models perform equally well during the period 1974-1979, the MVM outperforms the FLM over the periods 1980-1985 and 1986-1991. In addition, both models suggest superior financial performance for EREITs relative to other investments in the market during the period 1980-1985. Copyright American Real Estate and Urban Economics Association.
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Volume (Year): 25 (1997)
Issue (Month): 3 ()
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