Article:
ON DEMAND: CROSS-COUNTRY
EVIDENCE FROM COMMERCIAL REAL ESTATE ASSET MARKETS
Authors: Steven H. Ott,
Timothy J. Riddiough, Ha-Chin Yi and Jiro Yoshida
Start Page: 1
End Page: 37
Volume: 11
Issue Number: 1
Year: 2008
Publication: International Real Estate Review
Abstract:
Using over 25 years of quarterly U.S.
and Japanese time series data, this paper examines the determinants of
demand for an important class of real assets: commercial real estate. We
specify a structural model of market equilibrium that considers direct
effects of real investment on built asset
price. Our empirical findings are consistent across countries and produce
several new results. First, we find that real investment exerts a
significant positive direct effect on asset price, which in turn feeds back
to impact investment decisions. Second, idiosyncratic risk is found to be
strongly positively related to asset price, and to complement supply
effects. Third, systematic risk is priced as expected, where the strength of
the relation between asset price and systematic risk is found to be higher
than in previous studies of capital asset prices. Fourth, lagged values of
price determinants (of up to two years) are consistently important in real
asset demand estimation. Alternative explanations for our findings are
analyzed and discussed. Implications for asset pricing model specification
and interpretation are also considered.
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