Securitized and Direct Real Estate Factors in the Pricing of US Bank Stocks

Published date01 December 2019
AuthorAlain Coën,Benoît Carmichael
Date01 December 2019
Securitized and Direct Real Estate
Factors in the Pricing of US Bank
Département déconomique, Université Laval, Québec, Canada and
Department of Finance, École des Sciences de la Gestion (ESG), Université du Québec
à Montréal (UQÀM), Montréal, Canada
This article analyzes the role of securitized and direct real estate risks in the
pricing of US bank stocks. Real estate risk measures are drawn from the
National Association of Real Estate Investment Trusts (NAREIT) and NCREIF
indexes. Beside the real estate, the other risk exposures considered are the
market, the term, and the default premiums. The period covered runs from
February 1990 to December 2015. GMM estimates of conditional multifactor
models report considerable evidence in favor of real estate risk in US bank
JEL Codes: G12; G21; R3
Accepted: 22 March 2018
The objective of this article is to study the role of real estate risk in the pricing
of US bank stocks. We proxy the real estate factor with three alternative indices
encompassing securitized (indirect) and direct real estate dimensions. Since the
nancial crisis of 20072008 and the formulation of Basel III objectives, the
identication of the banking sector common risk factors is once again a priority
task of the literature. The Basel Committee is aiming at raising the resilience of
the banking sector by strengthening the regulatory capital framework..
Beside the
market risk, the banking literature of Stone (1974), Lynge and Zumwalt (1980),
and Flannery and James (1984) emphasizes the interest rate exposure of banks.
So, with the notable exception of Gandhi and Lustig (2015), the literature takes
Fama and French (1992)s perspective that rm size and book-to-market risk fac-
tors anomaliesdo not apply to nancial rms because: ... the high leverage
that is normal for these rms probably does not have the same meaning as for non-
nancial rms, where high leverage more likely indicates nancial distress. A con-
jecture that appears to be corroborated in Viale et al. (2009)s empirical study.
1 For more details see:
© 2018 International Review of Finance Ltd. 2018
International Review of Finance, 19:4, 2019: pp. 893907
DOI: 10.1111/ir.12194

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