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Interest rate sensitivity and risk premium of property stocks

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  • Kim Hiang Liow
  • Joseph Ooi
  • Loke Kiat Wang

Abstract

This study examines the relationship between interest rate risk and returns of traded property stocks from an asset pricing perspective. Three exogenous factors are included in the APT model, in particular unexpected long-term interest rate fluctuation, unexpected market returns and unexpected industry returns. Using the weekly returns of 18 property stocks listed in Singapore between 1992 and 2001, an Iterated Non-linear Seeming Unrelated Regression (ITNLSUR) technique was employed to simultaneously estimate the sensitivities of these factors and how they are priced. Consistent with existing empirical evidence, the regression results show that the interest rate risk of property stocks is systematic and is priced in the APT framework. The study also reveals that the pricing of the interest rate risk is sensitive to the prevailing market conditions.

Suggested Citation

  • Kim Hiang Liow & Joseph Ooi & Loke Kiat Wang, 2003. "Interest rate sensitivity and risk premium of property stocks," Journal of Property Research, Taylor & Francis Journals, vol. 20(2), pages 117-132, January.
    • Handle: RePEc:taf:jpropr:v:20:y:2003:i:2:p:117-132
    DOI: 10.1080/0959991032000109508
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    Cited by:

    1. Tracey West & Andrew C. Worthington, 2003. "Macroeconomic risk factors in Australian commercial real estate, listed property trust and property sector stock returns: A comparative analysis using GARCH-M," School of Economics and Finance Discussion Papers and Working Papers Series 160, School of Economics and Finance, Queensland University of Technology.
    2. Alexey Akimov & Simon Stevenson, 2013. "Securitised Real Estate Regime-Switching Behaviour and the Relationship with Market Interest Rates," ERES eres2013_346, European Real Estate Society (ERES).
    3. Ramzi Tarazi & Mohammad Zahid Hasan, 2019. "The Effect of Economic and Fundamental Factors on the Australian Property Performance," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 15(2), pages 155-184.
    4. W. Scott Frame & Eva Steiner, 2022. "Quantitative easing and agency MBS investment and financing choices by mortgage REITs," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 50(4), pages 931-965, December.
    5. Chyi Lin Lee & Simon Stevenson & Ming‐Long Lee, 2018. "Low‐frequency volatility of real estate securities and macroeconomic risk," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 58(S1), pages 311-342, November.
    6. Alexey Akimov & Simon Stevenson & Maxim Zagonov, 2015. "Public Real Estate and the Term Structure of Interest Rates: A Cross-Country Study," The Journal of Real Estate Finance and Economics, Springer, vol. 51(4), pages 503-540, November.

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