• This paper examines non-real estate firms’ returns to see if they are correlated with their degree of real estate ownership/investment. More specifically, a capital asset pricing model (CAPM) is estimated for 358 firms across 51 non-real-estate industries, many of them relatively capital-intensive.
• The results show a consistent negative relation between the idiosyncratic component of firm return and the degree of real estate ownership. That is, within an industry it is the case that a firm’s return is lower if it has a relatively high fraction of its total assets (measured by book value) in real estate (also book value).
• The impact varies across industries, being greatest in the electronics industry. A pooled regression across industries finds a statistically and economically significant negative impact of relatively high real estate ownership on return.
• While there are no meaningful differences in returns for firms with very similar real estate concentration measures, for firms with concentration measures ten percentage points above average, implied excess annual returns are about one percentage point lower. This amounts to just under 10 percent of cumulative compound excess return over a ten year holding period.
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