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A Common Real Estate Risk Premium in Time-Varying Returns of Real Estate and Financial Assets

Author

Listed:
  • Leiting Deng
  • Tien Foo Sing
  • Hong Wang

Abstract

The market integration hypothesis in the latent common market factors study by Mei and Liu (1994) suggests that when the risk premiums of the investment can be captured by common risk beta in overall stock, both and real estate markets, the financial and real estate markets can be deemed to be integrated. This paper employed the multi-factor latent variable model of Mei and Lee (1994) to test the predictability of five asset markets and also to examine whether there are common risk premiums in the five asset markets in Singapore. Our results were consistent with those found in the study by Mei and Lee (1994), which found that the three market factors, inclusive of real estate market risk factor, contain sufficient market information to explain the price variations of real estate and financial asset classes. By further examining into the beta coefficient estimates of the commercial real estate and property stock assets with respects to the three latent market factors. We observed differences in the market behaviors in the five asset classes, even though the risk premiums could be fully captured by the three market risk factors. It seems like securitized real estate as represented by the property stock asset is more integrated with the overall stock market, and less so with the direct real estate market and bond market.

Suggested Citation

  • Leiting Deng & Tien Foo Sing & Hong Wang, 2004. "A Common Real Estate Risk Premium in Time-Varying Returns of Real Estate and Financial Assets," ERES eres2004_125, European Real Estate Society (ERES).
  • Handle: RePEc:arz:wpaper:eres2004_125
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    File URL: https://eres.architexturez.net/doc/oai-eres-id-eres2004-125
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    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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