Multiple asset class investing : equilibrium asset pricing evaluation of real estate risk and return across four quadrants

The major objective of this study is to test equilibrium asset pricing models with respect to how well they price risk across multiple asset classes; including the four quadrants of real estate. While using the Geltner (1999) paper as a springboard for our approach, this thesis both updates Professor Geltner's earlier work and extends its scope through the testing of additional models and asset classes. Using historical data to derive beta estimates, we empirically test several variations of the Capital Asset Pricing Model (CAPM). These variations include the traditional, single-beta, Sharpe-Lintner CAPM, as well as the multi-beta, Fama-French CAPM. For the single-factor formula we explore the use of two different market portfolio proxies, the S&P 500 Index and the National Wealth Portfolio (NWP). We also apply the single-factor formula to a non-wealth based, consumption oriented approach. Test results show the NWP based CAPM to be the strongest model, being both robust and statistically significant in its pricing of asset volatility. When using the traditional S&P 500 index as the market proxy, the basic CAPM performs surprisingly well, though not as well as the NWP version. The multi-beta Fama-French model explains a large amount of price variation, however, only the market and size factors prove to be statistically significant at the 95% confidence level.

Department dc:contributor.department

Massachusetts Institute of Technology. Dept. of Urban Studies and Planning.

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2005

Authors dc:creator

• Li, Nan, 1972-
• Price, Steven McKay

Advisor dc:contributor.advisor

• David M. Geltner.

• Urban Studies and Planning.

Statement dc:rights

• M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/1721.1/33181

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/33181