Dr. Mark Sunderman accepted for publication in the Journal of Real Estate Finance and Economics

For release:  March 16, 2018

Dr. Mark Sunderman, Morris Fogelman Real Estate Chair of Excellence and professor of Finance, recently had a paper accepted for publication in the Journal of Real Estate Finance and Economics. The paper is entitled, "Housing "Beta": Common Risk Factor in Returns of Stocks." Dr. Sunderman coauthored the paper with Dr. Vishaal Baulkaran from the University of Lethbridge of Alberta, Canada and Dr. Pawan Jain from the University of Wyoming. Dr. Jain is a former Fogelman College doctoral student.

This paper explores whether a housing risk factor (housing beta) should be used to explain stock returns. Given the impact of the housing market on GDP growth, private wealth, indirect effect on consumption, and influence on improving portfolio returns, the authors argue that the housing market pose a systematic economy-wide risk. Hence, this risk factor should be priced and it should be an important determinant of stock returns. The authors, therefore, investigate whether the housing market is a systematic risk factor in the context of a multifactor model. In the paper, they propose a real estate "beta" in the spirit of an asset pricing framework and empirically show that the housing market is an important and separate risk factor. They observe that the real estate beta is positive and significant for their full sample as well as pre-crisis and financial crisis period. Using the Fama-MacBeth approach, they show that the real estate beta is positive and significant regardless of the length of the estimation window. Furthermore, their results are robust to several alterative specifications and longer time period.