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- Title
The Substitutability of Real Estate Assets.
- Authors
Seck, Diery
- Abstract
This paper investigates the degree of substitutability between securitized real estate assets and real estate assets whose prices are appraisal-based. Given the insensitivity of unsecuritized asset's returns to the returns on stock market indices, equilibrium asset pricing models cannot be used to compare these two avenues of investment. Two assets are deemed substitutable if the information sets underlying unbiased, minimum error variance estimates of their pricing parameters are identical. The empirical evidence shows that the prices of the transactions-based assets—real estate investment trusts and the stock price index of the home building industry—follow a random walk while the prices of the appraisal-based assets—FRC/NCREIF indices—do not. The variance decompositions of the vector autoregressions also show that the level of economic activity helps predict the price indices of appraisal-based assets while the stock market index and the term structure of interest rates are better predictors of the prices of transactions-based assets.
- Subjects
ASSETS (Accounting); ESTATE assets; STOCK price indexes; ECONOMIC equilibrium; INVESTMENTS; REAL estate business; ECONOMIC indicators
- Publication
Real Estate Economics, 1996, Vol 24, Issue 1, p75
- ISSN
1080-8620
- Publication type
Article
- DOI
10.1111/1540-6229.00681