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

Posted: 29 May 2015

See all articles by Ho (David) Kim Hin

Ho (David) Kim Hin

Independent

Kwame Addae-Dapaah

Independent

John L. Glascock

University of Connecticut - School of Business - Center for Real Estate and Urban Economic Studies; European Business School

Date Written: May 27, 2015

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.

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

Suggested Citation

Hin, Ho (David) Kim and Addae-Dapaah, Kwame and Glascock, John L., International Direct Real Estate Risk Premiums in a Multi-Factor Estimation Model (May 27, 2015). Journal of Real Estate Finance and Economics, Vol. 51, No. 1, 2015. Available at SSRN: https://ssrn.com/abstract=2611258

Ho (David) Kim Hin (Contact Author)

Independent ( email )

No Address Available

Kwame Addae-Dapaah

Independent ( email )

No Address Available

John L. Glascock

University of Connecticut - School of Business - Center for Real Estate and Urban Economic Studies ( email )

Storrs, CT 06269
United States

European Business School ( email )

Gustav-Stresemann-Ring 3
Wiesbaden, Hessen 65189
Germany

Register to save articles to
your library

Register

Paper statistics

Abstract Views
237
PlumX Metrics