Real Estate and the Arbitrage Pricing Theory: Macrovariables vs. Derived Factors

REAL ESTATE ECONOMICS

Posted: 20 Jun 1997

See all articles by Su-Jane Chen

Su-Jane Chen

University of Wisconsin at Eau Claire

Cheng-ho Hsieh

Louisiana State University, Baton Rouge - E.J. Ourso College of Business Administration

Bradford D. Jordan

University of Florida; University of Florida - Department of Finance, Insurance and Real Estate

Abstract

Two empirical models are used to implement the arbitrage pricing theory: the factor loading model (FLM) and the macrovariable model (MVM). This study compares the ability of these two models to explain real estate returns using equity REIT returns as a proxy. Two tests are performed: a comparison of cross-sectional adjusted-R2's and the Davidson and Mackinnon test. The results show that while the two models perform equally well during the period 1974 - 1979,the MVM outperforms the FLM over the periods 1980 - 1985 and 1986 - 1991. In addition, both models suggest superior financial performance for EREITs relative to other investments in the market during the period 1980 - 1985.

JEL Classification: R51

Suggested Citation

Chen, Su-Jane and Hsieh, Cheng-ho and Jordan, Bradford D., Real Estate and the Arbitrage Pricing Theory: Macrovariables vs. Derived Factors. REAL ESTATE ECONOMICS, Available at SSRN: https://ssrn.com/abstract=9281

Su-Jane Chen (Contact Author)

University of Wisconsin at Eau Claire ( email )

Eau Claire, WI 54702
United States
715-836-2710 (Phone)
715-836-3582 (Fax)

Cheng-ho Hsieh

Louisiana State University, Baton Rouge - E.J. Ourso College of Business Administration ( email )

Baton Rouge, LA 70803-6308
United States

Bradford D. Jordan

University of Florida ( email )

Gainesville, FL 32611
United States

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States

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