Real Estate Volatility Tests Essay

Real Estate Volatility Tests Essay

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Real estate volatility tests
There has been research carried out on the risk and returns of real estate investments trusts (REIT). This study was done by Najand and Fitzgerald (2006, p.174) who studied the volatility and return for REITs between 1995 and 2003 with daily data where they found that they had an average beta of 0.24 and an abnormal return 2.25%. A study done by Chaudhry, Myer and Webb (1999, p.342) on real estate stocks, in the United States between the period 1978 and 1996, revealed that common stocks had an inverse long-run relationship with real estate stocks. This study can be compared to other results concluded from the studies on common stock. Another study done by Ennis and Burik (1991, p.24) between the years 1980 and 1989 on U.S real estate stocks deduced that real estate stocks generally have a low correlation or beta to market index and that it can be both positive and negative. Nevertheless, there are no accessible research which is very new or recent about the movements of real estate stocks and their performance when compared to the market especially when it comes to the real estate markets in china. The housing prices in the Chinese real estate has grown so much over the last decade which has led to escalating prices in the market and with the correlation between the real estate prices and the rate of volatility makes this research very plausible.

3.5.4 Tests of CAPM
Many tests have been done to evaluate whether or not the tests for CAPM are accurate or not.


A consequence of the popularity and the impact the Capital Asset Pricing Model had on financial asset valuation, there are a lot of research and tests done on whether or not the model is accurate.
Black, Jensen and Schole conducted an empiri...


... middle of paper ...


...asset pricing model which is one of the fundamental models in finance that describes the relationship between risk and return. Further, the validity of the model is evaluated.
Further, there is a discussion of the Fama French Model as an expansion to the CAPM that adds value and size factors to the market risk factor.
Then, the arbitrage pricing theory was introduced and discussed. The theory combines several risk factors, both systematic and unsystematic risk in the calculation of required rate of return.
The chapter continues with a short description of stock features and the Nordic stock exchanges. The real estate market and return is discussed and the subject is further investigated through descriptions of existing empirical evidence. Previous market efficiency and volatility tests on the real estate stock market are examined and also earlier tests on CAPM.

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