Time-Varying Expected Returns and Information in Home Prices

Yuming Li and Zhong-guo Zhou

Journal of Real Estate Portfolio Management, 2000, vol. 6, issue 1, 61-74

Abstract: Executive Summary. In this article, we estimate a conditional two-beta asset pricing model in which the expected excess returns are not only related to the conditional beta with respect to the market portfolio of financial assets but also related to the conditional beta with respect to changes in home prices. We first apply a rolling regression procedure to form an ex ante factor mimicking portfolio that has a maximum correlation with changes in real home prices. We then conduct tests of the conditional two-beta asset pricing model in which the conditional betas vary in a nonlinear way with the real market returns and changes in real home prices. We find that home prices contain valuable information about the time-varying betas and expected stock and bond returns.

Date: 2000
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DOI: 10.1080/10835547.2000.12089592

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