TY - JOUR T1 - The Volatility of Real Estate Markets: <em>A Decomposition</em> JF - The Journal of Portfolio Management SP - 140 LP - 150 DO - 10.3905/jpm.2015.41.6.140 VL - 41 IS - 6 AU - William C. Wheaton Y1 - 2015/09/30 UR - https://pm-research.com/content/41/6/140.abstract N2 - The research reported in this article examines how the volatility of real estate markets can be exactly decomposed into supply-side and demand-side factors that add up. What allows this is measuring volatility with vacancy, rather than examining rents, income, or investment return. In this decomposition, the role of supply depends keenly on its timing relative to demand side shocks. When the correlation between the two sides of the market is sufficiently positive, supply can help to reduce market volatility. Negative correlations imply that supply always contributes to market volatility. Empirically, the author compares the overall volatility of 50 metropolitan markets, across several property types (offices, apartments, industrial, and hotels) and finds very different decompositions across the types. With these decompositions, the author tries to characterize those kinds of markets (geographically within each type of property) whose volatility is driven more by demand rather than by supply factors.TOPICS: Real estate, volatility measures, portfolio management/multi-asset allocation ER -