The Variation of Economic Risk Premiums in Real Estate Returns

Posted: 10 Jun 1998

See all articles by George Andrew Karolyi

George Andrew Karolyi

Cornell University - SC Johnson College of Business

Anthony B. Sanders

George Mason University - School of Business

Abstract

We examine the predictable components of returns on stocks, bonds, and real estate investment trusts (REITs). We employ a multiple beta asset pricing model and find that there are varying degrees of predictability among stocks, bonds, and REITs. Furthermore, we find that most of the predictability of returns is associated with the economic variables employed in the asset pricing model. The stock market risk premium is highly important in capturing the predictable variation in stock portfolios, the bond market risk premiums (term and risk structure of interest rates) are important in capturing the predictable variation in bond portfolios. For REITs, however, both the stock and bond market risk premiums capture the predictable variation in returns. REITs have comparable return predictability to stock portfolios. We conclude that there is an important economic risk premium for REITs that are not captured by traditional multiple-beta asset pricing models.

JEL Classification: R0

Suggested Citation

Karolyi, George Andrew and Sanders, Anthony Bown, The Variation of Economic Risk Premiums in Real Estate Returns. Available at SSRN: https://ssrn.com/abstract=97315

George Andrew Karolyi

Cornell University - SC Johnson College of Business ( email )

174A STATLER HALL
ITHACA, NY 14853
United States
6142820229 (Phone)

HOME PAGE: http://https://www.johnson.cornell.edu/faculty-research/faculty/gak56/

Anthony Bown Sanders (Contact Author)

George Mason University - School of Business ( email )

Fairfax, VA 22030
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
1,706
PlumX Metrics