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What Does the Stock Market Tell Us About Real Estate Returns?
Author(s) -
Gyourko Joseph,
Keim Donald B.
Publication year - 1992
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/1540-6229.00591
Subject(s) - real estate , capitalization rate , real estate investment trust , financial economics , economics , portfolio , stock (firearms) , cost approach , renting , stock market index , stock market , business , econometrics , finance , mechanical engineering , paleontology , horse , political science , law , engineering , biology
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.