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International Direct Real Estate Risk Premium in a Multi-Factor Estimation Model

Addae-Dapaah, K; (2015) International Direct Real Estate Risk Premium in a Multi-Factor Estimation Model. Journal of Real Estate Finance and Economics , 51 (1) pp. 52-85. 10.1007/s11146-014-9474-z.

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JREFE Intl Direct RE Prems in a MF Model Estim - DH KAD JG Springer Published Online 3 July 2014 (1) copy.pdf - Published version
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Abstract

We estimate international risk premiums for North and South Asia and US direct real estate by using a pooled-panel multi-factor least squares model. Data for the paper are from JLL REIS-Asia and the Russell-NCREIF Property Indexes. Our results, based on the Geltner and Miller (2007) 1st and 4th order autoregressive de-smoothing models, affirm the existence of appraisal smoothing in the direct real estate market returns. Secondly, our findings affirm that the true historical volatility of autoregressive lagged de-smoothed returns is a reasonable estimate of international direct real estate risk premiums. Thirdly, we find that changes in macroeconomic and real estate variables explain the office and retail returns more than the residential returns. There is also a high vacancy rate risk premium that we attribute to country-specific, institutional environmental factors. Furthermore, the South Asia direct real estate risk premium is found to be higher than that for North Asia. Moreover the risk premiums for North and South Asia are higher than that for the US. Finally, our results show that appraisal smoothed returns significantly underestimate the international direct real estate risk premiums for the sampled Asia markets and the US.

Type: Article
Title: International Direct Real Estate Risk Premium in a Multi-Factor Estimation Model
DOI: 10.1007/s11146-014-9474-z
Publisher version: http://dx.doi.org/10.1007/s11146-014-9474-z
Language: English
Additional information: The final publication is available at Springer via http://dx.doi.org/10.1007/s11146-014-9474-z.
Keywords: North and South Asia, US, Direct real estate, International risk premiums, Pooled-panel data, Multi-factor least squares model, Autoregressive de-smoothing, Macroeconomic variables and real estate variables, Industry Sect
UCL classification: UCL
UCL > Provost and Vice Provost Offices
UCL > Provost and Vice Provost Offices > UCL BEAMS
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of the Built Environment
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of the Built Environment > The Bartlett School of Planning
URI: https://discovery.ucl.ac.uk/id/eprint/1485856
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