The current study investigates whether systematic skewness offers an alternative perspective as to why the risk-adjusted returns on real estate should be similar to that for stocks. This is not a trivial issue since an affirmative finding implies that we might be incorrectly measuring real estate risk from both a pricing and a portfolio allocation perspective. A multivariate test of the Kraus-Litzenberger model is used to investigate this skewness proposition with the K-L CAPM tested against several alternative versions of the CAPM. The study finds that the Kraus-Litzenberger model offers additional insights into the measurement of real estate risk. Evidence is also found that both the zero beta and the consumption-oriented CAPM hold, which is consistent with the recent literature in real estate.
Liu, C. H., Hartzell, D. J., & Grissom, T. V. (1992). The role of co-skewness in the pricing of real estate [Electronic version]. Retrieved [insert date], from Cornell University, School of Hospitality Administration site: http://scholarship.sha.cornell.edu/articles/286