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Asymmetric Risk Measures and Real Estate Returns

  • Ping Cheng


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    Rational investors distinguish between extremely high and extremely low returns. The measures of investment risk should reflect such asymmetric risk perception. This study presents six asymmetric risk metrics and empirically tests their abilities in explaining the cross-sectional variations of real estate returns. It finds strong evidence that systematic downside risk is associated with a risk premium, and skewness provides significant explanatory power to the variation of cross-sectional property returns. On the other hand, co-skewness does not explain real estate returns well and is not a good systematic risk measure. Copyright Springer Science + Business Media, Inc. 2004

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    Article provided by Springer in its journal The Journal of Real Estate Finance and Economics.

    Volume (Year): 30 (2004)
    Issue (Month): 1 (October)
    Pages: 89-102

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    Handle: RePEc:kap:jrefec:v:30:y:2004:i:1:p:89-102
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    1. Liu, Crocker H & Hartzell, David J & Grissom, Terry V, 1992. "The Role of Co-skewness in the Pricing of Real Estate," The Journal of Real Estate Finance and Economics, Springer, vol. 5(3), pages 299-319, September.
    2. Myer, F C Neil & Webb, James R, 1994. "Statistical Properties of Returns: Financial Assets versus Commercial Real Estate," The Journal of Real Estate Finance and Economics, Springer, vol. 8(3), pages 267-82, May.
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    5. Harlow, W. V. & Rao, Ramesh K. S., 1989. "Asset Pricing in a Generalized Mean-Lower Partial Moment Framework: Theory and Evidence," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 24(03), pages 285-311, September.
    6. Bawa, Vijay S. & Lindenberg, Eric B., 1977. "Capital market equilibrium in a mean-lower partial moment framework," Journal of Financial Economics, Elsevier, vol. 5(2), pages 189-200, November.
    7. Campbell R. Harvey & Akhtar Siddique, 2000. "Conditional Skewness in Asset Pricing Tests," Journal of Finance, American Finance Association, vol. 55(3), pages 1263-1295, 06.
    8. Young, Michael S & Graff, Richard A, 1995. "Real Estate Is Not Normal: A Fresh Look at Real Estate Return Distributions," The Journal of Real Estate Finance and Economics, Springer, vol. 10(3), pages 225-59, May.
    9. Kraus, Alan & Litzenberger, Robert H, 1976. "Skewness Preference and the Valuation of Risk Assets," Journal of Finance, American Finance Association, vol. 31(4), pages 1085-1100, September.
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