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The Composition of Market Proxy in REITs Risk Premium Estimation
Abstract
A market portfolio is constructed in this paper that is in the spirit of Roll (1977). It consists of equity assets, fixed-income securities, and real estate, and tests whether the real estate investment trust (REIT) risk premium that is estimated using an equity index alone is robust to the misspecification of the market portfolio. The results show that REIT betas increase significantly relative to a more complete market proxy. Moreover, adding real estate to the market portfolio accounts for a significant portion of the bias in the estimated REIT market risk premium.
Date Issued
2012-01-01Subject
market portfolio; equity; asset management; real estate investment trusts; REITs; risk management
Rights
Required Publisher Statement: © American Real Estate Society. Reprinted with permission. All rights reserved.
Type
article