Authors: Jarrod Johnston, and Jeff Madura

Start Page:97
End Page:106
Volume: 8
Issue Number: 2
Year: 2002
Publication: Journal of Real Estate Portfolio Management

Abstract: A popular topic in financial research has been the development and perfection of models
for pricing stocks. Yet, generalized models are not necessarily applicable to financial intermediaries because of their unique characteristics that distinguish them from other types of firms. A three-factor pricing model that incorporates a real estate factor along with stock market and interest rate factors is developed. Results of the analysis lend support to the application of the three-factor model to insurance companies. Insurance company returns are positively and significantly related to real estate market movements. The results also indicate that the precise estimate of exposure to each form of systematic risk varies by type of insurance company. The exposure levels to interest rate risk vary significantly across types of insurance companies.