by Xiaolong Liu*

Executive Summary. A market portfolio is constructed in this paper that is in the spirit of Roll (1977). It con sists of equity assets, fixed-income securities, and real estate, and tests whether the real estate investment trust (REIT) risk premium that is estimated using an equity index alone is robust to the misspecification of the market portfolio. The results show that REIT betas increase sig nificantly relative to a more complete market proxy. Moreover, adding real estate to the market portfolio ac counts for a significant portion of the bias in the esti mated REIT market risk premium