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What can commercial property performance reveal about bank valuations?

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  • Kohlscheen, Emanuel
  • Takáts, Előd

Abstract

We test whether commercial property performance, proxied by real estate investment trust (REIT) prices, can inform us about bank equity prices. Using data from the United States, the euro area and Japan, we show that REIT prices can predict bank equity prices. Furthermore, a “commercial property factor” adds significant explanatory power to both the CAPM and the 3-factor Fama-French model. At the same time, quantile regressions show that this factor becomes particularly prominent during downturns. It accounts for around half of the drop in average bank valuations during the great financial crisis and, again, during the Covid-19 pandemic.

Suggested Citation

  • Kohlscheen, Emanuel & Takáts, Előd, 2021. "What can commercial property performance reveal about bank valuations?," Journal of International Money and Finance, Elsevier, vol. 113(C).
    • Handle: RePEc:eee:jimfin:v:113:y:2021:i:c:s0261560620303065
    DOI: 10.1016/j.jimonfin.2020.102350
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    More about this item

    Keywords

    Asset prices; Banks; Commercial property; Financial stability; Real estate;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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