The Journal of Real Estate Finance and Economics

, Volume 49, Issue 4, pp 477–523 | Cite as

Myths and Facts about the Alleged Over-Pricing of U.S. Real Estate

Evidence from Multi-Factor Asset Pricing Models of REIT Returns
  • Massimo Guidolin
  • Francesco RavazzoloEmail author
  • Andrea Donato Tortora


This paper uses a multi-factor pricing model with time-varying risk exposures and premia to examine whether the 2003–2006 period has been characterized, as often claimed by a number of commentators and policymakers, by a substantial mispricing of publicly traded real estate assets (REITs). The estimation approach relies on Bayesian methods to model the latent process followed by risk exposures and idiosynchratic volatility. Our application to monthly, 1979–2009 U.S. data for stock, bond, and REIT returns shows that both market and real consumption growth risks are priced throughout the sample by the cross-section of asset returns. There is weak evidence at best of structural mispricing of REIT valuations during the 2003–2006 sample.


REIT returns Bayesian estimation Structural instability Stochastic volatility Linear factor models 

JEL Classifications

G11 C53 



We thank Peter Schotman (a discussant), one anonymous referee, and participants to the 2011 Maastricht-NUS-MIT Symposium for comments and encouragement. Massimo Guidolin acknowledges support from the Center for Analysis of Investment Risk. Andrea Donato Tortora acknowledges support from the Marie Curie Early Stage Training Programme. The views expressed in this paper are our own and do not necessarily reflect those of Norges Bank.


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Copyright information

© Springer Science+Business Media New York 2013

Authors and Affiliations

  • Massimo Guidolin
    • 1
    • 2
  • Francesco Ravazzolo
    • 3
    Email author
  • Andrea Donato Tortora
    • 4
  1. 1.Bocconi UniversityMilanoItaly
  2. 2.Centre for the Analysis of Investment Risk (CAIR)Manchester Business SchoolManchesterUK
  3. 3.Research DepartmentNorges BankOsloNorway
  4. 4.Cassa Depositi e Prestiti S.p.A., Risk ManagementRomeItaly

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