This website uses cookies to ensure you have the best experience. Learn more

Real Estate Volatility Tests Essay

986 words - 4 pages

Real estate volatility tests
There has been research carried out on the risk and returns of real estate investments trusts (REIT). This study was done by Najand and Fitzgerald (2006, p.174) who studied the volatility and return for REITs between 1995 and 2003 with daily data where they found that they had an average beta of 0.24 and an abnormal return 2.25%. A study done by Chaudhry, Myer and Webb (1999, p.342) on real estate stocks, in the United States between the period 1978 and 1996, revealed that common stocks had an inverse long-run relationship with real estate stocks. This study can be compared to other results concluded from the studies on common stock. Another study done by Ennis and Burik (1991, p.24) between the years 1980 and 1989 on U.S real estate stocks deduced that real estate stocks generally have a low correlation or beta to market index and that it can be both positive and negative. Nevertheless, there are no accessible research which is very new or recent about the movements of real estate stocks and their performance when compared to the market especially when it comes to the real estate markets in china. The housing prices in the Chinese real estate has grown so much over the last decade which has led to escalating prices in the market and with the correlation between the real estate prices and the rate of volatility makes this research very plausible.

3.5.4 Tests of CAPM
Many tests have been done to evaluate whether or not the tests for CAPM are accurate or not.

A consequence of the popularity and the impact the Capital Asset Pricing Model had on financial asset valuation, there are a lot of research and tests done on whether or not the model is accurate.
Black, Jensen and Schole conducted an empirical test on the CAPM and its security market line between the years 1926 and 1965. They made a regression analysis and used the New York stock exchange as a weighted market index. They estimated beta values for all the listed stocks on NYSE to calculate the expected return. They calculated the SML slope to be 12.972% with high significance, which was considered to be the risk free rate of return or the return for a portfolio with beta of zero. This provided support for the CAPM and the approach for beta as the only predictor for differences in expected return (Haugen, 1999, p.238-239).
Basu (1977) however, divided stocks on the basis of earnings-stock ratios and found that the CAPM underestimated the high earnings to price stocks while it overestimated the low earnings to price stocks. Bhandari (1988) found that stocks with high debt-equity ratios systematically are underestimated compared to their market betas presented by the CAPM.
Fama & French (2004, p.36) confirms that “Ratios involving stock prices have information about expected returns missed by market betas”. The issue of evaluating a model that are based on assumptions that need to be...

Find Another Essay On Real Estate Volatility Tests


4331 words - 17 pages as expected in a sustained recovery this year, a rich FBKLCI index should be expected to further advance.Question 2In our opinion, the commercial real estate will be one of the best performing industry over the next 12 months in Malaysia. Order than implication of optimistic view of Malaysian economic, the government policy, greater prospect of construction sector development, increasing of Malaysian population and structure released are also

Real State and Property Management: What are FirstService Brands?

792 words - 4 pages The real estate and property management industries are immensely large in terms of revenues and volume of corporations. The industry tends to be cyclical, and highly impacted by recession. The entire industry felt a large trough during the mortgage crisis beginning in 2007 through the recession of 2009. Many companies couldn’t continue operations leaving more opportunity for expansion and acquisition for those that did survive

Case study: Language Competition

1752 words - 8 pages forming the domain is slowed down. Figure 3 : the results of the AS-model (left) and MW-model (right) simulation with parameters S = 0.4, a = 3. For a small difference in prestige between the two language, in this case 0.1, bilingual agents in the MW-model caused a fast extinction of the less prestigious one. However, the volatility is relatively low, the process of extinction is slowed down. Same as the previous tests, the bilingual agents did lay

exchange rate pass through

2485 words - 10 pages run. Also, import prices in local currencies explain 46 percent of exchange rate volatility in the short run and about 65 percent in long run for the countries. Choudhri and Hakura (2001) tests a hypothesis by Taylor (200) and finds that strong positive dependence between mean inflation rate and pass through across 71 countries in period of 1979 – 2000. The result implies that low inflationary environment leads low exchange rate pass through to

Descriptive Statistics - California's Unaffordable Housing

1048 words - 4 pages data, the average income over the years was $46,680, and the median income was $48,368, again reflective of a steady increase. Big changes are possible but the population that already purchased expensive real estate would be affected where the value of their real estate would have to stay the same approximately for twenty five to thirty years. That is correct close to thirty years at the current household income increase rate.Mortgage interest

the essay is an economics paper abt the relation between S&P500 and NASDAQ, using regression and other statistical tools

2419 words - 10 pages adjusted; Civilian Unemployment Rate, percentage seasonally adjusted; Balance of Payment Basis (trade balance, goods and services), millions of dollars seasonally adjusted; Federal Funds Rate, daily percentages; Currency in Circulation, billions of dollars, not seasonally adjusted; All Employees (finance, insurance, real estate), thousands, seasonally adjusted; M1 Money Stock, billions of dollars, seasonally adjusted; Inventories, millions of dollars

Studies Conducted in estimating hedge ratios

1796 words - 7 pages , Basis, and Heteroscedasticity in Hedging Mortgages. American Real Estate and Urban Economics Association, 15, 79-97.Park, T. H., & Switzer, L. N. (1995). Time-Varying Distributions and the Optimal Hedge Ratios for Stock Index Futures. Applied Financial Economics, 5, 131-137.Pennings, J. M. E., & Meulenberg, M. T. G. (1997). Hedging Efficiency: A Futures Exchange Management Approach. Journal of Futures Markets, 17, 599-615.Satyanarayan, S

China: International Private Banking Institutions

2456 words - 10 pages banking is great opportunity because it is a largely fee-based business. Fortunately, private banking in China has huge potential due to increasing population of HNWIs, changing investment culture and government restriction on real estate. 2.1. Increasing population of HNWIs The number of HNWIs is the most important factor to estimate potential for private banking in the future. China recently has shown double digit growth rate in HNWI population

Foreign Banks vs. U.S. Banks: Impact on small business loans

815 words - 3 pages . Loans in all groups were made by commercial banks, while the proportions increased in an equal fashion.The second conclusion obtained was that the loan distribution among a variety of categories differs among various ownership groups and over time. Researchers saw banks restructuring the loan portfolios. The focus of the restructure was to increase real estate loans. The proportions and the rate of change are different when domestic versus

The Great American Divide

1447 words - 6 pages action, but will it be too late? Era of Volatility This feature begins with a poem by W. B. Yeats entitled, “The Second Coming”. It is a dark poem that aptly applies to the shrinking middle-class, the failing markets, and the increasing arguing of presidential candidates (Foroohar, 2011). Globally, there is a “double-dip” recession occurring (Foroohar, p. 28). Recession is defined as “a period of declining real incomes and rising

Thailand Currency Crisis: Causes and Recommendations

2007 words - 9 pages Causes of the Crisis There is no single factor by itself could explain the causes of the Thailand currency crisis beginning in 1997. The confluence of various domestic and international conditions together created this financial earthquake. 1. Financial Liberalization, Asset Misallocation to Real Estate The purpose of financial liberalization was to integrate the domestic economy into a globalized financial system, to open up the domestic

Similar Essays

Volatility Models Essay

2074 words - 9 pages forecasting. Although there are some studies that find that the GARCH predictions are not so well, many authors have found later on that this bad performance was due to the bad specification of the ‘real’ volatility and not to the GARCH estimation per se, because the conditional variance of a financial series is an unobservable process, so there are some possible interpretations of what are you going to substitute in order to do the forecasting exercise

Real Estate Portfolio Valuation: Annotated Bibliography

2004 words - 8 pages flows to improve real estate portfolio valuation. If the design/methodology approach of the Monte Carlo approach were used, it would measure the complex cash generating assets such as real estate assets return distribution. The Monte Carlo simulation inputs were described as using the physical real estate price volatility estimator based on cash flow derived from the residential real estate portfolio to provide more robust valuations than

The Islamic Capital Market Essay

2047 words - 8 pages acquires and develops the real estate properties with the intention to manage them as part of its portfolio rather than resell them once they are developed. • Mortgage o Mortgage REITs primarily hold long-term mortgages, but many also engage in o Offers interest-based loans to real estate owners, operators or developers. o It involves greater risk since mortgage REITs tend to be more sensitive to volatility in market interest rates. This is due to the

Malaysia Exports To Singapore: Causal Relationship With Gdp And Exchange Rate

4839 words - 19 pages case with Singapore. Sukar, A (1999) noted that the effect of exchange rate volatility was a controversial issue in international economics and there was no real consensus on the direction or the size of the exchange rate volatility and trade relationship. 6 He also stated that the exchange rate volatility increased risk and uncertainty and therefore could hamper the flow of trade and investment. His findings confirmed that volatility in real