1 AN EXAMINATION OF REAL ESTATE FACTOR ON ASSET PRICING

This paper attempts to explore whether real estate can capture the cross-sectional variation of stock returns in the Hong Kong Stock Markets using both unconditional pricing model and conditional pricing model based on up and down markets. The results of this paper support the claim that real estate should be included in the pricing model. The results of Fama-MacBeth (1973) two-stage regression technique indicate that real estate is a significant pricing factor under unconditional market situation. Under the conditional market settings, real estate is positively related to stock returns during up markets (market returns> risk-free rate) and negatively related to stock returns during down markets (market returns < = risk-free rate). As a result, real estate might be a powerful variable that can capture the cross-section stock returns. 1 * I thank Robert Terpstra and Keith Lam for many helpful comments and suggestions