Terry V. Grissom

The Integration of the Real Estate Market and the Stock Market: Some Preliminary Evidence

The current study investigates whether the commercial real estate market is segmented from the stock market using the framework of Jorion and Schwartz (1986). Evidence is found to support the hypothesis that segmentation does exist as the result of indirect barriers such as the cost, amount, and quality of information for real estate rather than legal constraints. However, this evidence is contingent on whether real estate returns are computed with appraised values or imputed sale prices and on which market proxy is chosen.

An Approach to Industrial Real Estate Market Segmentation and Valuation Using the Arbitrage Pricing Paradigm

This paper investigates whether a segmented market exists for industrial real estate with respect to risk and return characteristics. Given the existence of industrial market segmentation, the next issue examined is whether a submarket perspective or an integrated real estate market orientation provides better rate of return estimates for individual industrial properties using an Arbitrage Pricing Theory (APT) framework. The results support the existence of regional markets for industrial real estate. A submarket orientation rather than an integrated perspective is also found more appropriate in predicting returns on industrial real estate.

The impact of rental properties on the value of single-family residences

Abstract This study examines the effects that single-family rental properties in a residential neighborhood have on the value of single-family residences in that area. The analysis blends real estate valuation concepts with evidence found in the housing maintenance literature and urban succession theory to develop testable hypotheses regarding the property-specific, proximity-related, and neighborhood-wide impacts of rental properties on property values. The data used to test the hypotheses include the tenure status of 23,119 single-family residences and 1,162 single-family sales. Regression results support all three hypotheses. Although numerous studies on the value impacts of other externalities have been published, this is the first study to examine the separation of property rights. The results of this study provide additional insights into housing maintenance and also have implications for neighborhood zoning regulations.

The Composition of the Market Portfolio and Real Estate Investment Performance

This study investigates whether the composition of the market portfolio leads to different inferences on real estate performance. As a point of departure, this paper first explores whether the omission of assets in a market proxy leads to a biased measurement of investment performance. The study finds that ranking investment performance is not meaningless even though investment performance is inaccurately measured. Furthermore, the composition of the market proxy does not necessarily lead to different inferences on real estate investment performance although superior real estate investment performance arises from the omitted asset phenomenon and also from smoothing bias in general.

The role of co-skewness in the pricing of real estate

The current study investigates whether systematic skewness offers an alternative perspective as to why the risk-adjusted returns on real estate should be similar to that for stocks. This is not a trivial issue since an affirmative finding implies that we might be incorrectly measuring real estate risk from both a pricing and a portfolio allocation perspective. A multivariate test of the Kraus-Litzenberger model is used to investigate this skewness proposition with the K-L CAPM tested against several alternative versions of the CAPM. The study finds that the Kraus-Litzenberger model offers additional insights into the measurement of real estate risk. Evidence is also found that both the zero beta and the consumption-oriented CAPM hold, which is consistent with the recent literature in real estate.

Alternative Rationales for Superior Real Estate Investment Performance: An Empirical Reinterpretation of Prior Research

Summary The purpose of this study is to re‐evaluate the existing research on superior real estate investment performance and to suggest alternative explanations for previous findings. A portion of this analysis draws on data from the empirical studies reviewed to the extent possible with appraisal data as well as transaction data based on properties sold by the National Council of Real Estate Investment Fiduciaries (NCREIF) members used for studies which do not report their data. Evidence is presented which links superior real estate investment performance to positive excess skewness in the return distribution. The study also shows that there is a greater likelihood that the return distributions having positive excess skewness are associated with returns computed on the basis of appraised values as opposed to transaction prices. In addition to this, the study finds that inflation and the omission of assets from the market proxy also accounts in part for superior real estate investment performance.

Superior Real Estate Investment Performance: Enigma or Illusion? A Critical Review of the Literature

The purpose of this paper is to critique the existing empirical evidence on the investment performance of real estate relative to alternative asset categories. The key issue which guides this review of the investment performance literature is whether abnormal real estate returns are merely an illusion which arises from the shortcomings associated with various real estate performance studies or are the result of an omission of more fundamental factors. We suggest that any superior return is a short-run phenomenon, because, according to capital market theory, all assets should exhibit similar risk and return characteristics in the long run. If real estate continues to possess superior performance in the long run, then this implies that fundamental factors have been omitted from the real estate pricing model. Moreover, we will propose that a world in which the capital asset pricing model holds might be compatible with the existing evidence, because most of the prior studies have focused on total risk rather than on systematic risk.1 Consequently, all assets can plot on the security market line in equilibrium, given a CAPM world, regardless of whether on asset (portfolio) such as real estate dominates another asset (protfolio) such as stocks from a mean-variance perspective.