Market Efficiency and Return Statistics: Evidence from Real Estate and Stock Markets Using a Present-Value Approach

This paper develops a methodology to identify asset price response to news in the framework of the Campbell–Shiller log-linear present-value equation. We further show that a slow price adjustment in real estate markets not only induces a high serial autocorrelation in excess returns, but also dampens the return volatility and the correlation with excess returns in other asset markets. Using Hong Kong real estate and stock market data, we find that the quarterly real estate price assimilates only about half the effect of market news, whereas the quarterly stock price incorporates the news fully. Our analysis identifies a cumulative price adjustment that recovers lost information in real estate returns due to market inefficiency and thereby restores the real estate return volatility and the correlation between real estate and stock markets.     

Co‐movements and Correlations Across Asian Securitized Real Estate and Stock Markets

We find conditional real estate‐stock correlations at the local, regional and global levels are time varying and asymmetric in some cases for our sample of eight Asian securitized real estate markets over 1995–2009. Real estate–global stock correlations co‐move significantly and positively with real estate–regional stock correlations and real estate–local stock correlations. They are also influenced significantly by relative (real estate/stock) volatilities and their lags at three integration levels. Furthermore, real estate and stock volatilities, covariances and correlations increased from the preglobal financial crisis period to the crisis period. However, real estate and stock volatility are more important than correlation in causing the changes in covariance during both the precrisis and crisis periods. Finally, exchange rate volatility appears to have played a relatively less important role in these cross real estate–stock correlations.     

Price Signaling and Return Chasing: International Evidence from Maturing REIT Markets

This article examines the liquidity of international real estate securities across 10 markets over the period 1990–2015. We apply and compare results for four different measures of liquidity, and find that while liquidity has increased consistently, wide variations still exist across markets, with the United States and Japan in the lead. Our results also suggest that the introduction of local REIT regimes did not have any pervasive effects on stock liquidity. When we study the relationship between liquidity and returns, we document new and consistent evidence for international return chasing behavior, whose pattern is a function of local market efficiency, listed real estate market maturity and stock ownership dispersion. The introduction of REIT regimes seems to weaken the importance of extra performance over and above general equity returns as investors tend to allocate funds to real estate securities within real estate rather than equity portfolios.     

Errors in Variables, Links between Variables and Recovery of Volatility Information in Appraisal-Based Real Estate Return Indexes

The present article proposes a multivariate approach to unsmoothing appraisal-based real estate return indexes to recover the true market volatility information in real estate returns. It scrutinizes the role played by errors in variables, in conjunction with an analysis of other economic activities relevant to real estate returns, to exploit the functional relationship and the mechanism of interactions between real estate returns and these economic activities. Appraisal smoothing can therefore be detected and corrected properly and efficiently, without presuming a weakly efficient real estate market. The approach is then applied to U.K. real estate indexes as empirical examples. The results suggest a reasonable volatility in U.K. real estate investment that is close to reality. It is found that the volatility of the true market return on real estate is 1.5404–1.9282 times that of the return on the appraisal-based indexes, in contrast to figures of 2.4862–5.8720 produced by the fully unsmoothing procedure.     

Using Nonlinear Tests to Examine Integration Between Real Estate and Stock Markets

An alternative approach to test whether the real estate and stock markets are cointegrated is presented. A nonlinear test, which allows for a stochastic trend term as opposed to a deterministic drift term, is developed. The results of the nonlinear model are compared to the results obtained using conventional cointegration tests. The cointegration results support the view that the real estate and stock markets are segmented, whereas the nonlinear model supports the view that the markets are fractionally integrated. There is a nonlinear relationship between the stock and real estate markets, but movement of the real estate market towards the stock market is slow and divergence between the two markets can be prolonged.     

Back from Beyond the Bid–Ask Spread: Estimating Liquidity in International Markets

Research on the topic of liquidity has greatly benefited from the improved availability of data. Researchers have addressed questions regarding the factors that influence bid–ask spreads and the relationship between spreads and risk, return and liquidity. Intraday data have been used to measure the effective spread, and researchers have been able to refine the concepts of liquidity to include the price impact of transactions on a trade-by-trade analysis. The growth in the creation of tax-transparent securities has greatly enhanced the visibility of securitized real estate, and has naturally led to the question of whether the increased visibility of real estate has caused market liquidity to change. Although the growth in the public market for securitized real estate has occurred in international markets, it has not been accompanied by universal publication of transaction data. Therefore, this article develops an aggregate daily data-based test for liquidity and applies the test to U.S. data in order to check for consistency with the results of prior intraday analysis. If the two approaches produce similar results, we can apply the same technique to markets in which less detailed data are available and offer conclusions on the liquidity of a wider set of markets.     

Determinants of the Rate of Return for Nonresidential Real Estate: Inflation Expectations and Market Adjustment Lags

This paper analyzes the economic forces that determine the real rate of return for nonresidential real estate. Our analysis shows that the intermarket variation in the real rate of return is statistically significant, and the rate of return differs by land use and market area, as well as over time in response to changes in macro-economic conditions. We use inflation variables as surrogates for changes in macroeconomic conditions over time. In contrast to earlier studies, we find that nonresidential real estate may not outperform expected inflation. We believe that the impact of expected inflation (and other macroeconomic variables) on real estate rates of return depends upon the interaction of the macro-environment and specific local real estate market conditions. Finally, our empirical evidence suggests that the effects of a given shock dissipate rather quickly in most markets when we take into account locational and property use differences.     

The Integration of Commercial Real Estate Markets and Stock Markets

This paper tests whether commercial real estate markets (both exchange-traded and non-exchange-traded) are integrated with stock markets using multifactor asset pricing models. The results support the hypothesis that the market for exchange-traded real estate companies, including REITs, is integrated with the market for exchange-traded (non-real-estate) stocks. Moreover, the degree of integration has significantly increased during the 1990s. However, when appraisal-based returns (adjusted for smoothing) are used to construct real estate portfolio returns, the results fail to support the integration hypothesis, although this may reflect the inability of these estimated private market returns to accurately proxy for commercial real estate returns. Interestingly, the growth rate in real per capita consumption is consistently priced in both commercial real estate markets and stock markets, whereas previous studies have found mixed evidence on the role of consumption in explaining ex ante stock returns.     

The Markets for Real Estate Assets and Space: A Conceptual Framework

In this study, we present a simple analytic framework that divides the real estate market into two markets: the market for real estate space and the market for real estate assets. After describing the size and character of flows and stocks in the U.S. real estate market, we use our framework to demonstrate the important connections between the space and asset markets. We illustrate how these real estate markets are affected by the nation's macroeconomy and financial markets, tracing out the impacts resulting from various exogenous shocks on rents, asset prices, construction and the stock of real estate.     

Regime Shifts in Asian Equity and Real Estate Markets

This paper applies a new statistical technology for identifying regime shifts to analyze recent data on real estate and equity markets in eight developing Far Eastern countries in the 1992–1998 time period. We find that regime shifts in volatility occur in the summer of 1997; however, most of the regime shifts in returns occur in the spring of 1998. While the clustering of regime breaks does not seem to follow any obvious pattern, the country's exposure to trade and firm leverage are important. An analysis of Granger causality suggests that, in most cases, equity returns cause real estate returns but the converse is not true. We also find two-way causality in volatility, suggesting that a common factor drives volatility in these markets. Finally, we provide evidence that the regime shifts generally imply higher relative risk for real estate securities after the estimated breaks.     

Asymmetric Volatility, Correlation and Returns Dynamics Between the U.S. and U.K. Securitized Real Estate Markets

We construct synchronously priced indices of securitized property listed on the New York Stock Exchange and London Stock Exchange. The indices are then utilized to examine dynamic information flows between the two markets. By analyzing returns behavior, asymmetric volatility spillover effects and exceedance correlations, this study shows that the real estate markets in these two countries experience significant interaction on a daily basis when synchronously priced data are utilized. These results are different from when close-to-close returns are examined, implying that the use of close-to-close data can misconstrue the true dynamics that exist between these markets. Results also show significant asymmetric effects on both the volatility and correlation dynamics between the markets. This has several implications for property portfolio managers, indicating that positive and negative news impact the markets differently. This is particularly true for the United Kindom, where daily foreign news from the United States can influence U.K. volatility.     

The Fractal Structure of Real Estate Investment Trust Returns: The Search for Evidence of Market Segmentation and Nonlinear Dependency

This article presents a further test for market segmentation between the real estate market and the capital markets. We use rescaled range analysis developed in the fractal geometry literature to test for nonlinear trends in the returns series for different asset classes. We make three major conclusions: (1) the stock market displays tendencies consistent with a random walk, (2) portfolios of mortgage and equity REIT returns display tendencies consistent with a random walk and, (3) conditional upon the methods used, segmentation does not exist between different real estate markets and between the real estate and stock markets.     

Macroeconomic Risk Factors and the Role of Mispriced Credit in the Returns from International Real Estate Securities

We examine the canonical influence of global market, currency and inflation risks on the returns from international real estate securities. In addition, we study how mispricing of credit in the local banking systems is related to the returns from these securities. We analyze a global sample of real estate securities over the period 1999 to 2011 to test our hypotheses. We find support for the anticipated relationships between macroeconomic risk factors and the returns from international real estate securities. Our evidence also supports the expected link between local credit market conditions and the performance of international real estate securities.     

Commercial Office Space: Testing the Implications of Real Options Models with Competitive Interactions

We test the implications of real option pricing models with competitive interactions for commercial real estate development. The competitive nature of a local commercial real estate market relies on a Herfindahl ratio derived from individual developers' shares of total office construction in their market. All else being equal, greater competition among local developers is associated with more building starts. Other variables suggested by the real options pricing model, including the volatility of local lease rates, are also found to be statistically important. In addition, we provide evidence consistent with greater competition attenuating the extent to which increases in volatility delay commercial real estate development.     

Real Estate Investments,Product Market Competition and Stock Returns

By limiting operating flexibility, real estate investments are found to increase firm risk, thus expected returns. This study introduces product market competition as a critical determinant of the relation between real estate investments and stock returns. As part of capacity strategies, these investments are generally associated with increased market power and lower cash flow volatility in oligopolistic industries. I present a simple model of oligopolistic competition showing a negative relation between real estate holdings and firm beta, and empirically confirm this prediction. Controlling for product market competition enhances identification of the endogenous relation between real estate investments and stock returns.     

A Different Look at Commercial Real Estate Returns

Commercial real estate makes up a relatively small percentage of most institutional portfolios, even though the existing literature has consistently reported attractive risk-return characteristics that would suggest much larger allocations. This discrepancy has been explained by a perceived lack of comparability between return series calculated for real estate and those calculated for other asset classes. Just as investors actively involved in the futures markets do not consider individual common stocks to be traded continuously, those active in the stock market do not consider real estate to be traded continuously. In both cases, adjustments to reported returns are necessary to achieve a degree of comparability. This study makes such adjustments, using sales data from properties that help comprise the National Council of Real Estate Investment Fiduciaries / Frank Russell Company (NCREIF/FRC) Index to generate a "transaction-driven" commercial real estate return series. Examination of the risk-return characteristics of this series shows that it is quite different from traditionally reported real estate return series and far more consistent with risk-return characteristics that have been reported for other asset classes.     

An Approach to Industrial Real Estate Market Segmentation and Valuation Using the Arbitrage Pricing Paradigm

This paper investigates whether a segmented market exists for industrial real estate with respect to risk and return characteristics. Given the existence of industrial market segmentation, the next issue examined is whether a submarket perspective or an integrated real estate market orientation provides better rate of return estimates for individual industrial properties using an Arbitrage Pricing Theory (APT) framework. The results support the existence of regional markets for industrial real estate. A submarket orientation rather than an integrated perspective is also found more appropriate in predicting returns on industrial real estate.     

Geographic Portfolio Allocations,Property Selection and Performance Attribution in Public and Private Real Estate Markets

This article examines the effects of geographic portfolio concentrations on the return performance of U.S. public real estate investment trusts versus private commercial real estate over the 1996–2013 time period. Adjusting private market returns for differences in geographic concentrations with public markets, we find that core private market performance falls. Using return performance attribution analysis, we find that the geographic allocation effect constitutes only a small portion of the total return difference between listed and private market returns, whereas individual property selection within geographic locations explains, in part, the documented outperformance of listed versus private real estate market returns.     

What Does the Stock Market Tell Us About Real Estate Returns?

This paper analyzes the risks and returns of different types of real estate-related firms traded on the New York and American stock exchanges (NYSE and AMEX). We examine the relation between real estate stock portfolio returns and returns on a standard appraisal-based index, and find that lagged values of traded real estate portfolio returns can predict returns on the appraisal-based index after controlling for persistence in the appraisal series. The stock market reflects information about real estate markets that is later imbedded in infrequent property appraisals. Additional analysis suggests that the differences in the return and risk characteristics across different types of traded real estate firms can be explained in part by appealing to real estate market fundamentals relating to the degree of dependence of the real estate firm upon rental cash flows from existing buildings. These findings highlight the heterogeneity of securitized real estate-related firms.     

房地产宏观调控与地产公司股价波动的相关性——基于A股市场的实证分析

2005—2008年,频繁出台的房地产调控政策成为政策期间房地产上市公司股价波动和投资者财富效应的重要影响因素。本文研究发现,在事件窗内,一系列宏观调控政策对房地产上市公司产生了平均显著为负的累计异常回报率,对房地产上市公司产生总体负的股东财富效应;而在2008年9月之后,宽松的宏观政策对房地产上市公司股价的影响则相反。房地产公司股价波动受货币政策、土地政策、产业政策等不同政策的影响不同,对货币政策最敏感。横截面分析表明,资产规模越大、拥有国有背景房地产企业受政策冲击较小;沿海地区、以住宅开发销售为主的地产上市公司的股价对调控政策更敏感。