XXV Edition

1-2 December 2016"

Real Estate as a Common Risk Factor in Bank Stocks

Alain Coen, University of Québec at Montreal
Carmichael Benoit, Laval University

This article investigates the potential role of real estate risk in the pricing of 10 portfolios of US bank stocks formed by market equity. GMM estimates of conditional and unconditional multifactor models are provided. The main risk exposures considered beside real estate are the market, the term and the default premiums. The real estate risk is proxied with three alternative measures build with the NAREIT and NCREIF indexes. The sample covers the period running from June 1986 to December 2014. The article _finds considerable evidence in favour of the proposition that real estate risk is priced in US bank stocks. This conclusion does not change when the sample is split in two and it is robust to the inclusion of Fama and French new CMA factor. This exercise reveals that the real estate factor is a leading common risk factor in the last three decades generally associated with mortgage securitization and then with the so called \real estate bubble".

Area: Asset Pricing and Derivatives

Keywords: Asset pricing; Real Estate Risk; Bank stocks; Multifactor models;

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