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The Journal of Real Estate Finance and Economics

Erschienen in:

16.01.2018

The Anatomy of Public and Private Real Estate Return Premia

verfasst von: Tim A. Kroencke, Felix Schindler, Bertram I. Steininger

Erschienen in: The Journal of Real Estate Finance and Economics | Ausgabe 3/2018

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Abstract

Market-wide, stock market specific, and real estate market specific risk – what kind of risk and to which extent drives the returns of listed real estate? Based on a structural asset pricing model calibrated to the empirical data in the U.S., we show that at least two thirds of the risk premium of listed real estate are driven by the same factors as direct real estate. Our results shed new light on the risk-characteristics of listed real estate returns and are of high interest for academics, regulators, and portfolio managers alike.

Vorheriger Artikel A Reexamination of Housing Price and Household Consumption in China: The Dual Role of Housing Consumption and Housing Investment

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By using U.K. data from January 1979 to December 1982, Brown (1997) shows that an investor has to hold 100 properties to explain about 90% of the variation in portfolio returns. However, the market average of institutional investors with about 30 properties can only explain about 75%.

See http://www.reit.com/DataAndResearch/IndexData.aspx for the data and http://www.ftse.com/products/downloads/FTSE_NAREIT_US_Real_Estate_Index_Series.pdffor a detailed description of the index classification system.

See http://www.econ.yale.edu/~shiller/data.htm.

See http://www.russell.com for a detailed description of the index.

Koijen et al. (2017) characterize the relationship between business cycle risk, the bond risk premium, and the value premium of common stocks.

The real estate returns are reported to NCREIF on an unlevered basis. For a detailed description of the methodology for producing the transactions-based index (TBI) using the NCREIF database, see Fisher et al. (2007).

For this approximation, we use the data of total debt and equity of Equity REITs between 1990 and 2010 obtained from SNL Financial. The precise ratio rounded to three decimal places is 1.995.

They calibrate the state variable according to the Cochrane and Piazzesi (2005) factor.

Computational details are provided in the ??.

The slightly larger business cycle risk of listed real estate compared to that of stocks is consistent with the fact that these companies are value and small / mid cap stocks (see Koijen et al. (2017)).

Notice that this transaction lag is distinct from the smoothing lag induced by the appraisal-based estimation process.

The sample is based on 177 transactions between 1995 and 2002 of three institutional investors.

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Titel: The Anatomy of Public and Private Real Estate Return Premia
verfasst von: Tim A. Kroencke
Felix Schindler
Bertram I. Steininger
Publikationsdatum: 16.01.2018
Verlag: Springer US
Erschienen in: The Journal of Real Estate Finance and Economics / Ausgabe 3/2018
Print ISSN: 0895-5638
Elektronische ISSN: 1573-045X
DOI: https://doi.org/10.1007/s11146-017-9646-8

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