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The Role of Systematic Covariance and Coskewness in the Pricing of Real Estate: Evidence from Equity REITs

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Abstract

This study explores the impact of systematic risk (beta) and systematic coskewness on EREIT returns. The test uses the Skewness Preference CAPM, which includes the impact of the third moment on returns. The findings are that systematic risk impacts return in the predicted manner. However, there is no evidence that systematic coskewness is a determinant of EREIT return, which is contrary to prior findings using other financial instruments. Also, the problem of multicollinearity noted in earlier tests of the model does not occur herein.

Suggested Citation

  • Timothy W. Vines & Cheng-Ho Hsieh & John J. Hatem, 1994. "The Role of Systematic Covariance and Coskewness in the Pricing of Real Estate: Evidence from Equity REITs," Journal of Real Estate Research, American Real Estate Society, vol. 9(4), pages 421-430.
    • Handle: RePEc:jre:issued:v:9:n:4:1994:p:421-430
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    References listed on IDEAS

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    1. Stephen A. Ross, 2013. "The Arbitrage Theory of Capital Asset Pricing," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 1, pages 11-30, World Scientific Publishing Co. Pte. Ltd..
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    5. Liu, Crocker H & Hartzell, David J & Grissom, Terry V, 1992. "The Role of Co-skewness in the Pricing of Real Estate," The Journal of Real Estate Finance and Economics, Springer, vol. 5(3), pages 299-319, September.
    6. John S. Cotner, 1991. "Index option pricing: Do investors pay for skewness?," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 11(1), pages 1-8, February.
    7. Lim, Kian-Guan, 1989. "A New Test of the Three-Moment Capital Asset Pricing Model," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 24(2), pages 205-216, June.
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    Cited by:

    1. Thomas C. Chiang & Hooi Hooi Lean & Wing-Keung Wong, 2008. "Do REITs Outperform Stocks and Fixed-Income Assets? New Evidence from Mean-Variance and Stochastic Dominance Approaches," JRFM, MDPI, vol. 1(1), pages 1-40, December.
    2. Ping Cheng, 2004. "Asymmetric Risk Measures and Real Estate Returns," The Journal of Real Estate Finance and Economics, Springer, vol. 30(1), pages 89-102, October.
    3. Petros Messis & Achilleas Zapranis, 2014. "Herding behaviour and volatility in the Athens Stock Exchange," Journal of Risk Finance, Emerald Group Publishing, vol. 15(5), pages 572-590, November.
    4. Moreno, David & Rodríguez, Rosa, 2009. "The value of coskewness in mutual fund performance evaluation," Journal of Banking & Finance, Elsevier, vol. 33(9), pages 1664-1676, September.
    5. Moreno, David, 2008. "The value of coskewness in evaluating mutual funds," DEE - Working Papers. Business Economics. WB wb087616, Universidad Carlos III de Madrid. Departamento de Economía de la Empresa.

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    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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