Abstract:
While a significant amount of research has been undertaken on the risk premium
existing in stock markets, very few studies have evaluated the risk premium in
property markets. This paper extends the research on risk premium to the market
for securitised property in Australia, Japan, the UK and US. A dividend discount
model is applied to model the ex ante risk premium implied from the information
contained in the price of securitised property shares. A Markov regime-switching
model is then used to determine whether changes in the risk premium lead to
changes in market prices for these securities. The results show evidence of a
cyclical pattern in the risk premium for the securitised property market that can be
used by investors when deciding on the best time to buy or sell in this market.
