International Listed Real Estate Returns and Errors-in-Variables: Evidence from the Global Financial Crisis

Using the Global Financial Crisis (GFC) as a breakdown, we revisit the risk and return characteristics of publicly traded real estate companies from 14 countries proxied by FTSE EPRA indices over the period 2000 to 2015 in presence of errors-in-variables. We extend the seminal work of Bond, Karolyi and Saunders (2003), and shed a new light on the relative performance of listed real estate before and after the GFC. First, we suggest the use of various asset pricing models including the Fama-French (2015) five-factor asset pricing model with global and country-level factors. Second, we implement unbiased estimators to correct for the econometric bias induced by errors-in-variables (EIV) in asset pricing models. Third, we deal with the impact of illiquidity (measured by serial correlation) on the risk properties of international securitized real estate returns. Our findings show that international listed real estate risk factors changed radically after the GFC, which has resulted in more homogeneous markets internationally and less diversification opportunities for US-based investors.