What Can Commercial Property Performance Reveal about Bank Valuations?

27 Pages Posted: 2 Dec 2020 Last revised: 22 Dec 2020

See all articles by Emanuel Kohlscheen

Emanuel Kohlscheen

Bank for International Settlements (BIS)

Előd Takáts

Bank for International Settlements (BIS)

Date Written: December 1, 2020

Abstract

We test whether commercial property performance, proxied by real estate investment trust (REIT) prices, can inform us about bank equity prices. Using data from the United States, the euro area and Japan, we show that REIT prices can predict bank equity prices. Furthermore, a “commercial property factor” adds significant explanatory power to both the CAPM and the 3-factor Fama-French model. At the same time, quantile regressions show that this factor becomes particularly prominent during downturns. It accounts for around half of the drop in average bank valuations during the great financial crisis and, again, during the COVID-19 pandemic.

Keywords: asset prices, banks, commercial property, financial stability, real estate

JEL Classification: E44, G12, G21

Suggested Citation

Kohlscheen, Emanuel and Takáts, Előd, What Can Commercial Property Performance Reveal about Bank Valuations? (December 1, 2020). Journal of International Money and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3740625 or http://dx.doi.org/10.2139/ssrn.3740625

Emanuel Kohlscheen (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Előd Takáts

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

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