Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/210045 
Year of Publication: 
2013
Series/Report no.: 
Working Paper No. 2013/22
Publisher: 
Norges Bank, Oslo
Abstract: 
We use Bayesian methods to estimate a multi-factor linear asset pricing model characterized by structural instability in factor loadings, idiosyncratic variances, and factor risk premia. We use such a framework to investigate the key differences in the pricing mechanism that applies to residential vs. non-residential (such as office space, industrial buildings, retail property) real estate investment trusts (REITs). Under the assumption that the subprime crisis has had its epicentre in the housing/residential sector, we interpret any differential dynamics as indicative of the propagation mechanism of the crisis towards business-oriented segments of the US real estate market. We find important differences in the structure as well as the dynamic evolution of risk factor exposures across residential vs. non-residential REITs. An analysis of cross-sectional mispricings reveals that only retail, residential, and mortgage-specialized REITs were over-priced over the initial part of our sample, i.e., 1999-2006. Moreover, residential-driven real estate has structural properties that make it different from non-residential assets.
Subjects: 
multi-factor models
real estate
mispricing
real estate investment trusts
JEL: 
G11
C53
Persistent Identifier of the first edition: 
ISBN: 
978-82-7553-776-6
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper
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