Private and Public Real Estate - What's the Link? (May 2010)

Abstract:     
In this paper, we study the relationship between private and public real estate in the US and UK markets. We demonstrate a strong link between public and private real estate returns in each of these markets. To uncover these relationships, we correct for appraisal smoothing and properly account for the lead-lag relationship between public and private returns. We find that public returns lead private returns, even after removing appraisal smoothing in private returns. We also discuss how real estate risk changes over longer horizons. In particular, our results suggest that private and public returns become more correlated at longer investment horizons. This carries important implications for risk management and strategic asset allocation.

Number of Pages in PDF File: 16

Keywords: Private Public Real Estate US UK markets link returns appraisal lead-lag relationship between public private returns correlated longer investment horizons risk management strategic asset allocation

working papers series