Abstract
This study extends from Liu and Mei (1992) by further investigation of assets, real estate related securities, which includes both equity and mortgage real estate investment trusts (REITs), the stocks of builder- and owner-companies, and mortgage-backed securities (MBSs). There are five major findings. First, expected excess returns of real estate related securities are more predictable than the expected excess returns of value-weighted stocks and bonds. Second, right market timing is important to investors since evidence shows that the risk premiums of real estate related securities vary substantially over time. Third, real estate market conditions significantly influence bonds and MBSs. Fourth, MBSs are more similar to bonds than mortgage REITs. In addition, returns on mortgage REITs resemble both stocks and bonds. Finally, real estate stocks have a very high sensitivity toward stock market portfolio. This suggests that real estate stocks are not good instruments to help diversify stock market risk.
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