The current study investigates whether the commercial real estate market is segmented from the stock market using the framework of Jorion and Schwartz (1986). Evidence is found to support the hypothesis that segmentation does exist as the result of indirect barriers such as the cost, amount, and quality of information for real estate rather than legal constraints. However, this evidence is contingent on whether real estate returns are computed with appraised values or imputed sale prices and on which market proxy is chosen.

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This paper investigates whether a segmented market exists for industrial real estate with respect to risk and return characteristics. Given the existence of industrial market segmentation, the next issue examined is whether a submarket perspective or an integrated real estate market orientation provides better rate of return estimates for individual industrial properties using an Arbitrage Pricing Theory (APT) framework. The results support the existence of regional markets for industrial real estate. A submarket orientation rather than an integrated perspective is also found more appropriate in predicting returns on industrial real estate. Copyright American Real Estate and Urban Economics Association.

This study investigates whether the composition of the market portfolio leads to different inferences on real estate performance. As a point of departure, this paper first explores whether the omission of assets in a market proxy leads to a biased measurement of investment performance. The study finds that ranking investment performance is not meaningless even though investment performance is inaccurately measured. Furthermore, the composition of the market proxy does not necessarily lead to different inferences on real estate investment performance although superior real estate investment performance arises from the omitted asset phenomenon and also from smoothing bias in general. Copyright American Real Estate and Urban Economics Association.