A market portfolio is constructed in this paper that is in the spirit of Roll (1977). It consists 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 significantly relative to a more complete market proxy. Moreover, adding real estate to the market portfolio accounts for a significant portion of the bias in the estimated REIT market risk premium.
Liu, X., & Liu, P. (2012). The composition of market proxy in REITs risk premium estimation [Electronic version]. Journal of Real Estate Portfolio Management, 18(1), 79-98. Retrieved [insert date], from Cornell University, School of Hospitality Administration site: http://scholarship.sha.cornell.edu/articles/335/