What can commercial property performance reveal about bank valuations?

Emanuel Kohlscheen and Elod Takats

Journal of International Money and Finance, 2021, vol. 113, issue C

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 (search for similar items in EconPapers)
JEL-codes: E44 G12 G21 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:113:y:2021:i:c:s0261560620303065

DOI: 10.1016/j.jimonfin.2020.102350

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