As shown in the previous section, real estate risk may constitute a priced factor in the framework of the ICAPM. This section reviews the methodological framework used in the empirical analysis of this study. Section 3.1 briefly outlines the asset pricing specifications in the framework of the ICAPM. Section 3.2 reviews the VAR approach to derive innovations in state variables that denote the risk factors in cross-sectional asset pricing tests within the ICAPM. Section 3.3 describes the two asset pricing test methodologies, in particular the traditional beta method and the stochastic discount factor approach.
KeywordsAsset Price Risk Premium Excess Return Asset Price Model Price Error
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