Author: Michael J. Sullivan, Steven M. Cassidy, and Charles M. Ermer

Start Page: 113
End Page: 117
Volume: 6
Issue Number: 1
Year: 1991
Publication: Journal of Real Estate Research

Abstract: In this paper we develop a model that demonstrates the effect of transaction costs on measuring returns to real estate. Our model reveals that studies not adjusting for transaction costs will overstate risk-adjusted returns. Accordingly, at least part of the reported mean-variance superiority of real estate over investments in corporate or government securities may be due to failing to consider transaction costs. We also illustrate the extent to which the inclusion of transaction costs equalizes mean-variance for investments in real estate and securities.