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Real Estate Risk in Equity Returns

Empirical Evidence from U.S. Stock Markets

  • Book
  • © 2009

Overview

Authors:
  1. Gaston Michel
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Table of contents (6 chapters)

  1. Front Matter

    Pages I-XX
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  2. Introduction

    • Gaston Michel
    Pages 1-6

  3. Literature Review

    • Gaston Michel
    Pages 7-46

  4. Estimation Methodology

    • Gaston Michel
    Pages 47-63

  5. Data

    • Gaston Michel
    Pages 65-72

  6. Empirical Analysis

    • Gaston Michel
    Pages 73-147

  7. Conclusion

    • Gaston Michel
    Pages 149-150

  8. Back Matter

    Pages 151-167
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Keywords

About this book

Asset pricing theory aims at linking an asset’s higher return to its higher risk exposure. However, the Capital Asset Pricing Model (CAPM) of Sharpe (1964) and Lintner (1965), the most widely taught model in business and economics classes, has been largely contested in the literature by researchers finding anomalous patterns in equity returns. Based on the failure to match the CAPM with empirical data, researchers have been in an ongoing dispute whether the anomalous behavior in equity returns is still reconcilable with market equilibrium and, therefore, with a risk-based explanation, or must be seen as consequences of investors’ irrational behavior and the agency costs of professional investment management. To support a rational pricing story, Fama and French (1992, 1993, 1996) develop a three-factor model that is highly successful in c- turing the two well-known anomalies related to a stock’s market capitalization and valuation level, the size and book-to-market effects. They argue that their model must be seen in the context of Merton’s (1973) Intertemporal Capital Asset Pricing Model (ICAPM) so that their size and book-to-market factors act as state variables capturing the investor’s hedging motives. They consider relative distress risk as the economic source of the common variation in stock returns related to their factors.

About the author

Dr. Gaston Michel promovierte am Stiftungslehrstuhl für Asset Management bei Prof. Dr. Lutz Johanning.

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