As outlined in Sections 2.3, shocks to real estate markets may be good candidate to serve as a proxy for state-variable risk in the framework of the ICAPM, based on the real economic effects implied by the three real estate channels. When movements in real estate markets are a relevant concern to investors, then real estate risk should affect equity returns. Hence, a stock's risk premium should be directly related to its exposure to shocks to real estate markets. This section investigates empirically whether a significant relationship between real estate risk and a stock's risk premium is supported in the data.
KeywordsGross Domestic Product Real Estate Excess Return Real Estate Market Dividend Yield
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