Ownership in Real Estate and Stock Market Performance: Evidence from German Equities

While the ownership of real estate constitutes a considerable proportion of most listed firms' balance sheet, in the existing literature, whether or not the benefits outweigh the risks associated with corporate real estate, is the subject of controversy. In this context, the present paper investigates the repercussions and impact of corporate real estate on the stock performance of non-real estate equities in a time-series setting. In particular, the role of corporate real estate ownership in the pricing of returns is examined, after taking well-documented systematic risk factors into account. Employing a data sample from 1999 to 2013, we identify and analyze the conditions and characteristics faced by firms with a high level of corporate real estate. Since effects might be driven by industry-related differences, we explore whether the impact of ownership in real estate varies according to distinct business segments. In view of the significant difference in the proportion of real estate ownership among listed companies and the illiquid characteristics of real estate per se, investors demand a real estate or illiquidity return premium for such ownership. The present paper provides further insights into the pricing of stock returns, by considering corporate real estate as a priced determinant. The findings enhance the interpretation of expected general equity returns and may thus be of particular interest for investors as well as the management boards of listed companies.