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

40 Pages Posted: 12 Nov 2013 Last revised: 26 Dec 2019

See all articles by Daniele Bianchi

Daniele Bianchi

School of Economics and Finance, Queen Mary University of London

Massimo Guidolin

Bocconi University, Dept. of Finance; Bocconi University - CAREFIN - Centre for Applied Research in Finance

Francesco Ravazzolo

Free University of Bozen-Bolzano - Faculty of Economics and Management; BI Norwegian Business School

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). WBS Finance Group Research Paper No. 210, 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 Road
London, London E1 4NS
United Kingdom

HOME PAGE: http://whitesphd.com

Massimo Guidolin

Bocconi University, Dept. of Finance ( email )

Via Roentgen, 1
2nd floor
Milan, MI 20136
Italy

Bocconi University - CAREFIN - Centre for Applied Research in Finance

Via Sarfatti 25
Milan, 20136
Italy

Francesco Ravazzolo (Contact Author)

Free University of Bozen-Bolzano - Faculty of Economics and Management ( email )

Via Sernesi 1
39100 Bozen-Bolzano (BZ), Bozen 39100
Italy

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

HOME PAGE: http://www.francescoravazzolo.com/

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