The Determinants of the Ex Ante Risk Premium in Commercial Real Estate

Authors

Eli Beracha, Florida International University
Julia Freybote, Portland State UniversityFollow
Zhenguo Lin, Florida International University

Published In

Journal of Real Estate Research

Document Type

Citation

Publication Date

7-1-2019

Abstract

We investigate the determinants of the ex ante risk premium in commercial real estate. Using a 20-year time series and Markov-switching regression, we find that the ex ante risk premium is affected by fundamental and non-fundamental determinants, albeit not symmetrically when risk premiums are increasing and decreasing. In particular, we find that changes in debt capital market conditions have a higher predictive power for changes in the ex ante risk premium when it is increasing, while changes in stock market volatility and commercial real estate market returns have a higher predictive power when the risk premium is on the decline. In addition, changes in commercial real estate sentiment and NAREIT returns can predict changes in the ex ante risk premium; however, the predictive power of these variables varies across property types and risk premium (risk perception) states.

Description

© 2019 The American Real Estate Society

Locate the Document

http://doi.org/10.22300/0896-5803.41.3.411

DOI

10.22300/0896-5803.41.3.411

Persistent Identifier

https://archives.pdx.edu/ds/psu/30584

Citation Details

Beracha, E., Freybote, J., & Zhenguo Lin. (2019). The Determinants of the Ex Ante Risk premium in Commercial Real Estate. Journal of Real Estate Research, 41(3), 411–441.