Dissecting the 2007-2009 Real Estate Market Bust: Systematic Pricing Correction or Just a Housing Fad?

40 Pages Posted: 12 Nov 2013 Last revised: 6 Nov 2016

See all articles by Daniele Bianchi

Daniele Bianchi

School of Economics and Finance, Queen Mary University of London

Massimo Guidolin

Bocconi University - Department of Finance

Francesco Ravazzolo

Free University of Bolzano

Date Written: November 4, 2016

Abstract

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

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

Daniele Bianchi

School of Economics and Finance, Queen Mary University of London ( email )

Mile End Rd
Mile End Road
London, London E1 4NS
United Kingdom

HOME PAGE: http://whitesphd.com

Massimo Guidolin

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

Francesco Ravazzolo (Contact Author)

Free University of Bolzano ( email )

Bolzano
Italy

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