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Pricing of real estate specific market risks for worldwide 66 countries

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  • Lieser, Karsten

    (IESE Business School)

Abstract

I address the construction of hurdle rates for 66 countries that adequately compensate investors for the real estate specific market risks involved when investing, operating and exiting a foreign market. To estimate the market-based framework, I run random effect panel regressions for a period of six years from 2004-2009 of IPD direct property market returns and an integral and newly developed composite index that takes into account all real estate market and investment specific conditions. The regression results provide direct evidence that an increased perception of risk and instability in the countries' socio-economic conditions and institutional frameworks significantly imply higher investors' return expectations. Finally, the results provide international investors with an absolute hurdle rate that prices risks and opportunities of national real estate markets and guides investors in selecting a core, value-add, or opportunistic investment strategy.

Suggested Citation

  • Lieser, Karsten, 2011. "Pricing of real estate specific market risks for worldwide 66 countries," IESE Research Papers D/940, IESE Business School.
    • Handle: RePEc:ebg:iesewp:d-0940
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    File URL: http://www.iese.edu/research/pdfs/DI-0940-E.pdf
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    References listed on IDEAS

    as
    1. Stephen Lee, 2005. "Gauging the Investment Potential of International Real Estate Markets," ERES eres2005_238, European Real Estate Society (ERES).
    2. Lieser, Karsten & Groh, Alexander P., 2010. "The attractiveness of 66 countries for institutional real estate investments: A composite index approach," IESE Research Papers D/868, IESE Business School.
    3. Karsten Lieser & Alexander Groh, 2010. "The Attractiveness Of 66 Countries For Institutional Real Estate Investments: A Composite Index Approach," ERES eres2010_135, European Real Estate Society (ERES).
    4. Stephen Lee, 2006. "The Impact Of Country Risk On International Real Estate Returns," ERES eres2006_252, European Real Estate Society (ERES).
    5. Tom G. Geurts & Austin J. Jaffe, 1996. "Risk and Real Estate Investment: An International Perspective," Journal of Real Estate Research, American Real Estate Society, vol. 11(2), pages 117-130.
    6. repec:arz:wpaper:eres2010-135 is not listed on IDEAS
    7. Daniel Hoechle, 2007. "Robust standard errors for panel regressions with cross-sectional dependence," Stata Journal, StataCorp LP, vol. 7(3), pages 281-312, September.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Hurdle Rate; Country Risk; Real Estate Investments; International Asset Allocation;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • P25 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Urban, Rural, and Regional Economics
    • P52 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - Comparative Studies of Particular Economies

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