ON DEMAND: CROSS-COUNTRY EVIDENCE FROM COMMERCIAL REAL ESTATE ASSET MARKETS

Steven H. Ott, Timothy J. Riddiough, Ha Chin Yi, Jiro Yoshida

Research output: Contribution to journalArticlepeer-review

3 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)1-37
Number of pages37
JournalInternational Real Estate Review
Volume11
Issue number1
DOIs
StatePublished - Dec 1 2008

All Science Journal Classification (ASJC) codes

  • Demography
  • Geography, Planning and Development
  • Accounting
  • Finance
  • Urban Studies
  • Economics and Econometrics

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