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Dr. Max Mustermann Referat Kommunikation & Marketing Verwaltung ERES Conference 2012 Edinburgh Coskewness in European Real Estate Equity Returns Tobias.

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Presentation on theme: "Dr. Max Mustermann Referat Kommunikation & Marketing Verwaltung ERES Conference 2012 Edinburgh Coskewness in European Real Estate Equity Returns Tobias."— Presentation transcript:

1 Dr. Max Mustermann Referat Kommunikation & Marketing Verwaltung ERES Conference 2012 Edinburgh Coskewness in European Real Estate Equity Returns Tobias Dechant Kai-Magnus Schulte

2 Coskewness in European Real Estate Equity Returns Aim of the Paper pricing of European real estate equities cross-section relationship between coskewness and European real estate equity returns higher returns on equities which contribute negatively to equity market skewness Motivation real estate characteristics demand for the analysis of coskewness in asset pricing almost no evidence for the European real estate market some evidence for the explanatory power of coskewness in global real estate equities

3 Methodology Time Series Regressions (Fama & French 1993, 1996, 1997) rolling time series regressions to determine factor risk premia Cross Section Regressions (Fama & McBeth 1973, Harvey & Siddique 2000) explaining cross section return differences by regressing equity returns on factor risk premia Conditional Cross Section Regressions (Pettengill et al. 1995, 2000) explaining cross section returns differences by regressing equity returns on factor risk premia conditional on the state of the equity market

4 Data Thomson Reuters Datastream/Global Property Research (GPR) 16 European countries June June 2009 data frequency: monthly 275 (Ø 102) real estate equities (screening according to Ince und Porter, 2006) (Ø 3.864) general equities (screening according to Ince und Porter, 2006) currency: Euro equity market return: equally weighted return on all available equities riskless rate of return: equally weighted One Month Interbank Rate of all 16 countries

5 Constructing Portfolios reducing idiosyncratic risk in returns sequential sorting (Liew and Vassalou, 2000) sorting date: end of June each year from 1988 to 2009 sorting criteria: market capitalisation (ME) book equity/market equity (BE/ME) breakpoints ME: quartiles BE/ME: quartiles 16 real estate portfolios for time series regressions

6 Coskewness and Asset Pricing (1) Definition Coskewness contribution of asset skewness to skewness of the market portfolio preference for positive skewness (Kraus & Litzenberger 1976; Scott & Horvath 1980) asset which increases (decreases) market skewness should, on average, yield a lower (higher) return expected prefix in cross section regressions dependent on market skewness

7 Coskewness und Asset Pricing (2) Coskewness according to Harvey & Siddique (2000) residuals from CAPM regression unconditional measures of coskewness (not dependent on market skewness) easier interpretation in cross section regressions

8 Model (1) Rolling Time Series Regressions Determination of Factor Risk Premia: modelling time variation in factor risk premia rolling window of 60 months (check for robustness: 48 months, 72 months)

9 Model (2) Unconditional Cross Section Regressions Regression of Equity Returns on Portfolio Factor Loadings (g2i) monthly cross section regressions from July 1993 to June 2009 explaining return differences by rolling factor risk premia mean value of gammas indicates explanatory power

10 Model (3) Conditional Cross Section Regressions Conditioning cross section regression depending on the state of the equity market If an asset is classified as risky there must be some states in which its return is below that of a less riskier asset with

11 Results (2) – Base Model (Equally Weighted) Almost no explanatory power of coskewness neither unconditional nor conditional

12 Results (3) – Controlling for Weighting Effects weak conditional explanatory power when weighting effects are considered for

13 Results (4) – Controlling for Currency Effects conditional explanatory power when currency effects are controlled for

14 Results (1) – Cross Section Results without Coskewness (EW)

15 Summary & Implications Coskewness and Returns on European Real Estate Equities no explanatory power in unconditonal models indication for the explanatory power of coskewness in conditional models explanatory power of coskewness depends on the model coskewness proves to be significant when currency effects are considered relationship between market capitalisation, momentum and coskewness Role of Coskewness requires more attention in real estate asset pricing more research

16 Backup

17 Ergebnisse (1) – Querschnittsregressionen ohne Coskewness

18 Descriptive Statistics

19 Formung der systematischen Risikofaktoren HML und SMB Nach Portfolioformierung: S1/B1, S1/B2, S1/B3, S2/B1, S2/B2, S2/B3 SMB: S1/B1 + S1/B2 + S1/B3 – (S2/B1 + S2/B2 + S2/B3) Risikofaktor assoziiert mit der Größe einer Firma HML: S1/B1 + S2/B1 – (S1/B3 + S2/B3) Risikofaktor assoziiert mit der Bewertung einer Firma

20 Ergebnisse (1) Zeitreihenregressionen – 6 Portfolien

21 Ergebnisse (2) Zeitreihenregressionen – 25 Portfolien: 1988 – 2009

22 Ergebnisse (3) Zeitreihenregressionen – 25 Portfolien: 1988 – 1998

23 Ergebnisse (4) Zeitreihenregressionen – 25 Portfolien: 1999 – 2009

24 Coskewness and Asset Pricing (2) market Skewnesscoskewness expected sign (CS) positivenegative positivenegativepositive negative negativePositive expected sign in cross section regressions should be opposite to market skewness

25 Modell (2) Rollierende Zeitreihenregressionen – Bestimmung der Faktorrisikoprämien Monatlich rollierend durchgeführte Zeitreihenregressionen von Juni 1988 bis Juni 2008 Zeitraum jeder einzelnen Regression: 60 Monate Abbildung der Zeitvariation des systematischen Risikos

26 Coskewness und Asset Pricing Empirische Evidenzen Kraus & Litzenberger (1976) Friend & Westerfield (1980) Barone-Adesi (1985) Fang & Lai (1997) Harvey and Siddique (2000) Smith (2007) Ngyen & Puri (2009)

27 Coskewness und Asset Pricing (2) Coskewness nach Harvey & Siddique (2000) Beide Coskewness-Maße unkonditioniert (nicht abhängig von der Marktschiefe) Einfachere Interpretation in Querschnittanalysen Risikomaße rollierend über 60 Monate bestimmt

28 Model (4) Robustness of Results currency effects weighting effects country effects

29 Results (4) – Controlling for Country Effects conditional explanatory power when country effects are considered for


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