Open AccessInternational Real Estate Review
Author(s) -
John Okunev,
Patrick Wilson
Publication year - 2008
Publication title -
journal of the asian real estate society
Language(s) - English
Resource type - Journals
ISSN - 1029-6131
DOI - 10.53383/100096
Subject(s) - predictability , risk premium , capital asset pricing model , real estate investment trust , real estate , economics , investment strategy , equity (law) , equity premium puzzle , econometrics , financial economics , excess return , trading strategy , monetary economics , finance , market liquidity , paleontology , context (archaeology) , physics , quantum mechanics , law , political science , biology
This study presents further evidence of the predictability of excess equity REIT (real estate investment trust) returns . Recent evidence on forecasting excess returns using fundamental variables has resulted in diminishing returns from the 1990’s onward. Trading strategies based on these forecasts have not significantly outperformed the buy/hold strategy of the 1990’s. We have developed an alternative strategy that is based on the time variation of the risk premium of investors. Our results indicate that it is possible to outperform the buy/hold strategy by modeling the time variation of the risk premium. By modeling the dynamic behavior of the risk premium, we are able to implicitly capture economic risk premiums that are not captured by conventional multi beta asset pricing models.