The Journal of Real Estate Finance and Economics

, Volume 21, Issue 3, pp 221–233

Book Assets, Real Estate, and Returns on Common Stock

  • Chengho Hsieh
  • James D. Peterson

DOI: 10.1023/A:1012061418515

Cite this article as:
Hsieh, C. & Peterson, J.D. The Journal of Real Estate Finance and Economics (2000) 21: 221. doi:10.1023/A:1012061418515


Since real estate is common to most firms, this study examines whether there is a real estate factor in common stock returns that is not completely captured by existing asset pricing models. The three-factor model of Fama and French (1993), hereafter FF, is extended to incorporate a unique real estate factor. Using his extended-FF model, we examine the returns on 53 industry portfolios of common stocks over the 1972 through 1995 time period. The results indicate that a significant 19 percent of the industries are systematically related to the real estate factor. Most interestingly, we show that the loading of the real estate factor in common stock return is related to the loading of the book-to-market equity factor in these returns. We also construct decile portfolios of common stocks based on historical sensitivities of common stock returns to the real estate factor. The coefficients on the real estate factor vary systematically across the decile portfolios. The results of our analysis suggest that portfolio managers should manage their exposure to real estate.

book assetsreal estatecommon stock returns

Copyright information

© Kluwer Academic Publishers 2000

Authors and Affiliations

  • Chengho Hsieh
    • 1
  • James D. Peterson
    • 2
  1. 1.Department of Economics and Finance, College of Business AdministrationLouisiana State University—ShreveportShreveport
  2. 2.Charles Schwab & Co., Inc.San Francisco