A Note on the Effect of Transactions Costs on Real Estate Investment Return
In this paper we develop a model that demonstrates the effect of transaction costs on measuring returns to real estate. Our model reveals that studies not adjusting for transaction costs will overstate risk-adjusted returns. Accordingly, at least part of the reported mean-variance superiority of real estate over investments in corporate or government securities may be due to failing to consider transaction costs. We also illustrate the extent to which the inclusion of transaction costs equalizes mean-variance for investments in real estate and securities.
Volume (Year): 6 (1991)
Issue (Month): 1 ()
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- George M. Constantinides, 2005.
"Capital Market Equilibrium with Transaction Costs,"
World Scientific Book Chapters,in: Theory Of Valuation, chapter 7, pages 207-227
World Scientific Publishing Co. Pte. Ltd..
- Constantinides, George M, 1986. "Capital Market Equilibrium with Transaction Costs," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 842-862, August.
- Merton, Robert C, 1987. " A Simple Model of Capital Market Equilibrium with Incomplete Information," Journal of Finance, American Finance Association, vol. 42(3), pages 483-510, July.
- Merton, Robert C., 1987. "A simple model of capital market equilibrium with incomplete information," Working papers 1869-87., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Kenneth M. Lusht, 1988. "The Real Estate Pricing Puzzle," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 16(2), pages 95-104.
- W. B. Brueggeman & A. H. Chen & T. G. Thihodeau, 1984. "Real Estate Investment Funds: Performance and Portfolio Considerations," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 12(3), pages 333-354. Full references (including those not matched with items on IDEAS)
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