Real estate volatility tests
There has been research carried out on the risk and returns of real estate investments trusts (REIT). This study was done by Najand and Fitzgerald (2006, p.174) who studied the volatility and return for REITs between 1995 and 2003 with daily data where they found that they had an average beta of 0.24 and an abnormal return 2.25%. A study done by Chaudhry, Myer and Webb (1999, p.342) on real estate stocks, in the United States between the period 1978 and 1996, revealed that common stocks had an inverse long-run relationship with real estate stocks. This study can be compared to other results concluded from the studies on common stock. Another study done by Ennis and Burik (1991, p.24) between the years 1980 and
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This provided support for the CAPM and the approach for beta as the only predictor for differences in expected return (Haugen, 1999, p.238-239). Basu (1977) however, divided stocks on the basis of earnings-stock ratios and found that the CAPM underestimated the high earnings to price stocks while it overestimated the low earnings to price stocks. Bhandari (1988) found that stocks with high debt-equity ratios systematically are underestimated compared to their market betas presented by the CAPM. Fama & French (2004, p.36) confirms that “Ratios involving stock prices have information about expected returns missed by market betas”. The issue of evaluating a model that are based on assumptions that need to be fulfilled, Fama & French (2004, p.20) argues, is that it is hard to isolate whether the assumptions are violated or the model is invalid, in this case if the discrepancies of the CAPM model is due to bad pricing or bad asset pricing model. 3.6 Summarizing the framework for our research In chapter 3, we have presented and discussed the basic theories in a suitable order that are relevant for our topic and field of research. The purpose has been to provide the reader with an extensive understanding about the framework of information. The first part of this chapter dealt with stock return and the associated risk dealt with in this type of investment. The random

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