Asymmetric Risk Measures and Real Estate Returns

Abstract

Rational investors distinguish between extremely high and extremely low returns. The measures of investment risk should reflect such asymmetric risk perception. This study presents six asymmetric risk metrics and empirically tests their abilities in explaining the cross-sectional variations of real estate returns. It finds strong evidence that systematic downside risk is associated with a risk premium, and skewness provides significant explanatory power to the variation of cross-sectional property returns. On the other hand, co-skewness does not explain real estate returns well and is not a good systematic risk measure. Copyright Springer Science + Business Media, Inc. 2004asymmetric risk, real estate returns, portfolio management, skewness,

Coskewness in European real estate equity returns

“…While the main findings remain qualitatively unaltered, the results suggest that the impact of coskewness is more pronounced when the above-mentioned effects are controlled for. While the results support some findings from the US, such as , they contradict Vines et al (1994), Cheng (2005) as well as Yang and Chen (2009), who fail to detect a significant relationship between the cross-section of returns and co-/skewness. However, the results support Liow and Chan (2005), who suggest coskewness to be priced in various global real estate markets, including the Euro area.…”

“…In contrast to , they find that coskewness cannot explain cross-sectional return variations in any of their models, whereas the opposite holds for the classic CAPM beta. Cheng (2005) corresponds with these results, as he also finds that neither unconditional nor conditional coskewness, which is employed due to the strong autocorrelation in valuation-based data, can sufficiently explain cross-sectional NCREIF property returns. The same holds for the traditional CAPM beta.…”

Performance metrics for Spanish investment funds

“…14 Recent studies focused on the application of asymmetric risk measure are those conducted by Ang et al, 15 Hyung and De Vries, 16 Campbell and Kraeussl, 17 Cheng, 18 Gu, 19 Post and Van Vliet 20 and Morton et al 21 Our preliminary examinations also reveal that a subset of those portfolios considered display a negative return premium in comparison to the risk-free assets considered. Hence, we apply complementary measurements of performance based on studies conducted by Ferruz et al 22 and Ferruz and Sarto.…”

Do REITs Outperform Stocks and Fixed-Income Assets? New Evidence from Mean-Variance and Stochastic Dominance Approaches

“…On the other hand, Kuhle and Alvayay (2000) find evidence of inefficiency in the price of 108 equity REIT companies during 1989-1998. Jirasakuldech and Knight (2005 Vines et al (1994) and Cheng (2005) cannot find supporting evidence in favor of co-skewness as an explanation for REIT returns. These mixed findings may arise because different statistical tools were used in these studies, some of which may suffer from mis-specification or distributional problems.…”