Macroeconomic Risk Factors and the Role of Mispriced Credit in the Returns from International Real Estate Securities

The benefits of diversification from international real estate securities are generally well established. However, the drivers of international real estate securities returns are insufficiently understood. We jointly examine the empirical implications of three major international asset pricing models that account for broad macroeconomic risk factors. In addition, we develop the hypothesis that an indicator of mispriced credit is significant in explaining the time series variation in international real estate securities returns. We employ the returns generated by a large sample of firms from 20 countries over the period 1999 to 2011 to test our hypothesis. We find support for the predictions of the major international asset pricing models. We also find evidence in favour of our hypothesised link between local credit conditions and the performance of international real estate securities.

Generalized Systematic Risk

We generalize the concept of .systematic risk to a broad class of risk measures potentially accounting for high distribution moments, downside risk, rare disasters, as well as other risk attributes. We offer two different approaches. First is an equilibrium framework generalizing the Capital Asset Pricing Model, two-fund separation, and the security market line. Second is an axiomatic approach resulting in a systematic risk measure as the unique solution to a risk allocation problem. Both approaches lead to similar results extending the traditional beta to capture multiple dimensions of risk. The results lend themselves naturally to empirical investigation.