Corporate Real Estate Holdings and the Cross-Section of Stock Returns

Posted: 17 May 2010

See all articles by Selale Tuzel

Selale Tuzel

University of Southern California - Marshall School of Business - Finance and Business Economics Department

Multiple version iconThere are 2 versions of this paper

Date Written: June 2010

Abstract

This article explores the link between the composition of firms’ capital and stock returns. I develop a general equilibrium production economy where firms use two factors: real estate and other capital. Investment is subject to asymmetric adjustment costs. Because real estate depreciates slowly, firms with high real estate holdings are more vulnerable to bad productivity shocks and hence are riskier and have higher expected returns. This prediction is supported empirically. I find that the returns of firms with a high share of real estate capital exceed that of low real estate firms by 3-6% annually, adjusted for exposures to the market return, size, value, and momentum factors. Moreover, conditional beta estimates reveal that these firms indeed have higher market betas, and the spread between the betas of high and low real estate firms is countercyclical.

Keywords: D21, D92, E22, E44, G12, R33

Suggested Citation

Tuzel, Selale, Corporate Real Estate Holdings and the Cross-Section of Stock Returns (June 2010). The Review of Financial Studies, Vol. 23, Issue 6, pp. 2268-2302, 2010, Available at SSRN: https://ssrn.com/abstract=1607514 or http://dx.doi.org/10.1093/rfs/hhq006

Selale Tuzel (Contact Author)

University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
Los Angeles, CA 90089
United States

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