40 Pages Posted: 12 Nov 2013 Last revised: 6 Nov 2016
Date Written: November 4, 2016
We use a flexible Bayesian model averaging method to estimate a factor pricing model characterized by structural uncertainty and instability in macro-financial factor loadings and idiosyncratic risks. We propose such a framework to investigate key differences in the pricing mechanism that applies to residential vs. non-residential real estate investment trusts (REITs). An analysis of cross-sectional mispricings reveals no evidence of pure housing/residential real estate abnormal returns inflating between 1999 and 2007, to subsequently collapse. In fact, all REITs sectors record increasing alphas during this period, and show important differences in the dynamic evolution of risk factors exposures.
Keywords: I-CAPM, Mispricing, REIT, Model Uncertainty, Stochastic Breaks, Bayesian Econometrics
JEL Classification: G12, E44, C11, C58
Suggested Citation: Suggested Citation
Bianchi, Daniele and Guidolin, Massimo and Ravazzolo, Francesco, Dissecting the 2007-2009 Real Estate Market Bust: Systematic Pricing Correction or Just a Housing Fad? (November 4, 2016). Available at SSRN: https://ssrn.com/abstract=2353018 or http://dx.doi.org/10.2139/ssrn.2353018