Conditional Risk Premiums of Asian Real Estate Stocks

We investigate the determinants of the ex ante risk premium in commercial real estate. Using a 20-year time series and Markov-switching regression, we find that the ex ante risk premium is affected by fundamental and non-fundamental determinants, albeit not symmetrically when risk premiums are increasing and decreasing. In particular, we find that changes in debt capital market conditions have a higher predictive power for changes in the ex ante risk premium when it is increasing, while changes in stock market volatility and commercial real estate market returns have a higher predictive power when the risk premium is on the decline. In addition, changes in commercial real estate sentiment and NAREIT returns can predict changes in the ex ante risk premium; however, the predictive power of these variables varies across property types and risk premium (risk perception) states.

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Global Risk Premiums on Direct Office Real Estate Returns

The Journal of Portfolio Management ◽

10.3905/jpm.2021.1.266 ◽

2021 ◽

pp. jpm.2021.1.266

Author(s):

Ivo de Wit ◽

Christopher Mayer

Keyword(s):

Real Estate ◽

Global Risk ◽

Risk Premiums ◽

Real Estate Returns

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Political Uncertainty and the Real Estate Risk Premiums in Hong Kong

Journal of Real Estate Research ◽

10.1080/10835547.1997.12090878 ◽

1997 ◽

Vol 13 (3) ◽

pp. 297-315 ◽

Cited By ~ 4

Author(s):

K Chau

Keyword(s):

Hong Kong ◽

Real Estate ◽

Political Uncertainty ◽

Risk Premiums ◽

The Real ◽

The Real Estate

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The determinants of capitalization rates: evidence from the US real estate markets

Journal of Property Investment and Finance ◽

10.1108/jpif-12-2020-0140 ◽

2021 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Matt Larriva ◽

Peter Linneman

Keyword(s):

Real Estate ◽

Interest Rates ◽

Mortgage Debt ◽

Content Type ◽

Risk Premiums ◽

Financial Variables ◽

Fannie Mae ◽

The Us ◽

Out Of Sample ◽

Cap Rate

PurposeEstablishing the strength of a novel variable–mortgage debt as a fraction of US gross domestic product (GDP)–on forecasting capitalization rates in both the US office and multifamily sectors.Design/methodology/approachThe authors specifies a vector error correction model (VECM) to the data. VECM are used to address the nonstationarity issues of financial variables while maintaining the information embedded in the levels of the data, as opposed to their differences. The cap rate series used are from Green Street Advisors and represent transaction cap rates which avoids the problem of artificial smoothness found in appraisal-based cap rates.FindingsUsing a VECM specified with the novel variable, unemployment and past cap rates contains enough information to produce more robust forecasts than the traditional variables (return expectations and risk premiums). The method is robust both in and out of sample.Practical implicationsThis has direct implications for governmental policy, offering a path to real estate price stability and growth through mortgage access–functions largely influenced by the Fed and the quasi-federal agencies Fannie Mae and Freddie Mac. It also offers a timely alternative to interest rate-based forecasting models, which are likely to be less useful as interest rates are to be held low for the foreseeable future.Originality/valueThis study offers a new and highly explanatory variable to the literature while being among the only to model either (1) transactional cap rates (versus appraisal) (2) out-of-sample data (versus in-sample) (3) without the use of the traditional variables thought to be integral to cap rate modelling (return expectations and risk premiums).

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International Real Estate Review

International Real Estate Review ◽

10.53383/100096 ◽

2008 ◽

Vol 11 (2) ◽

pp. 32-46

Author(s):

John Okunev ◽

◽

Patrick J. Wilson ◽

Keyword(s):

Asset Pricing ◽

Real Estate ◽

Risk Premium ◽

Time Variation ◽

Trading Strategies ◽

Real Estate Investment Trust ◽

Pricing Models ◽

Real Estate Investment ◽

Risk Premiums ◽

Asset Pricing Models

This study presents further evidence of the predictability of excess equity REIT (real estate investment trust) returns . Recent evidence on forecasting excess returns using fundamental variables has resulted in diminishing returns from the 1990’s onward. Trading strategies based on these forecasts have not significantly outperformed the buy/hold strategy of the 1990’s. We have developed an alternative strategy that is based on the time variation of the risk premium of investors. Our results indicate that it is possible to outperform the buy/hold strategy by modeling the time variation of the risk premium. By modeling the dynamic behavior of the risk premium, we are able to implicitly capture economic risk premiums that are not captured by conventional multi beta asset pricing models.

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