Real Estate as a Common Risk Factor in the Financial Sector: International Evidence

Alain Coen, Benoit Carmichael and Alain Coen

ERES from European Real Estate Society (ERES)

Abstract: This article studies the role of real estate as a potential risk factor in the financial sector returns over the period running from February 1990 to December 2015 for a sample of 14 countries. We develop and test parsimonious Intertemporal Capital Asset Pricing Models (ICAPM) including a systematic risk and a real estate risk factor. We suggest two factors to capture the real estate risk measures in two complementary dimensions. The EPRA index is used to valuate the domestic real estate risk. Besides, to illustrate the role played by the US real estate as a potential contagion risk factor, we develop a US real estate risk premium. Used separately or combined in a three-factor model, both risk factors report the presence of a real estate risk factor. Our results show that the real estate risk in its both dimensions is priced in the financial sector. If the domestic real estate risk factor is valued, the US real estate factor seems to be often prevalent. It raises the question of a potential contagion effect.

Keywords: Asset Pricing; Financial sector; GMM; Multifactor Models; Real Estate Risk (search for similar items in EconPapers)
JEL-codes: R3 (search for similar items in EconPapers)
Date: 2019-01-01
New Economics Papers: this item is included in nep-ifn and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:arz:wpaper:eres2019_76

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