Co-Skewness and Co-Kurtosis in Global Real Estate Securities
Journal of Property Research, Vol. 22, No. 2 & 3, pp. 163-203, June 2005
Posted: 23 Jan 2011 Last revised: 25 Jan 2011
Date Written: January 21, 2011
Abstract
We explore the question of whether co-skewness and co-kurtosis risk measures can be added to supplement to the covariance risk in pricing global real estate securities and risk premium estimation. Based on a generalized four-moment CAPM with two alternative world market proxies, we examine Linear, Quadratic and Cubic Market Models using GMM and time-varying Kalman-Filter methodologies. Our results show that the second moment is important in explaining real estate securities returns. Furthermore, some real estate securities also display significant time-varying co-skewness and/or co-kurtosis. Co-kurtosis is more important than co-skewness in pricing global real estate securities. We further find that the co-skewness and co-kurtosis coefficients and the resulting risk premia are sensitive to the market proxy used. The findings of this study provide additional insights into the risk-return characteristics, pricing and portfolio design in global real estate securities.
Keywords: Higher-moment CAPM, co-skewness, co-kurtosis, time-varying, risk premia
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