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Pre-Trade Transparency and Return Co-movements in Commercial Real Estate Markets

Author

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  • Fuess, Roland

    ()

  • Ruf, Daniel

    ()

Abstract

This paper examines the effect of pre-trade transparency on return co-movements in international commercial real estate. We introduce a reference portfolio as a market's individual return benchmark. For each property market, the portfolio includes all markets with a higher pre-trade transparency. Their proximity in transparency levels imposes a learning-based linkage mechanism. A large variation in excess returns is explained by the risk exposure to the reference portfolio. Through the implied transmission channel, spillover and feedback effects arise from local shocks and lead to co-movements across real estate markets. Specifically, cultural familiarity allows investors to overcome the limited pre-trade transparency.

Suggested Citation

  • Fuess, Roland & Ruf, Daniel, 2015. "Pre-Trade Transparency and Return Co-movements in Commercial Real Estate Markets," Working Papers on Finance 1520, University of St. Gallen, School of Finance, revised Jan 2017.
  • Handle: RePEc:usg:sfwpfi:2015:20
    as

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    File URL: http://ux-tauri.unisg.ch/RePEc/usg/sfwpfi/WPF-1520.pdf
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    References listed on IDEAS

    as
    1. Judson A. Caskey, 2009. "Information in Equity Markets with Ambiguity-Averse Investors," Review of Financial Studies, Society for Financial Studies, vol. 22(9), pages 3595-3627, September.
    2. John C. Driscoll & Aart C. Kraay, 1998. "Consistent Covariance Matrix Estimation With Spatially Dependent Panel Data," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 549-560, November.
    3. Mele, Antonio & Sangiorgi, Francesco, 2009. "Ambiguity, information acquisition and price swings in asset markets," LSE Research Online Documents on Economics 24424, London School of Economics and Political Science, LSE Library.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Commercial real estate; cross-sectional dependence; opaque markets; spatial econometrics;

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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