Coskewness in European real estate equity returns

The paper investigates the effect of coskewness on expected European real estate equity returns. The study tests whether equities that contribute negatively to the skewness of the general equity market have, on average, higher returns than those which contribute positively to market skewness. In addition to the Fama-French (1993, 1996, 1997) three-factor model, two multi-factor models as well as unconditional and conditional Fama-MacBeth (1973) cross-section regressions are applied to a sample of 275 real estate equities from 16 European countries over the 1988 to 2009 period. When considering different measures of coskewness, cross-section results reveal that coskewness is an important factor in explaining conditional European real estate equity returns, independently of whether the conditioning variable is the general or the real estate equity market. However, results are dependent on the examined time period and the employed specification of the asset pricing model, which delivers strongest results when controlling for potential country or currency effects. In accordance with other studies, a relationship between size and coskewness is evident