Authors: Konstantinos Konstantaras

Title: Detaching the real options component from real estate stock prices: evidence from Southeast Asia

Abstract

This research decomposes the market value of real estate listed companies into a part that proxies embedded real options. Because of real estate businesses nature real options are expected to strongly influence market values. Analysis focuses on a specific industry across different Southeast Asian countries experiencing unrelated business cycles. The positive witnessed relation between returns and changes in volatility is due to the presence of real options, whose values increase with volatility and its skewness. The sensitivity of firm value to volatility is confirmed to be stronger among firms with more investment opportunities operating in countries exhibiting increased real estate vigorousness.