Center for Risk Management Research

This paper examines and estimates the equity risk premium for securitized real estate (U.S. Real Estate Investment Trusts-REITs). By introducing stochastic taxes for equity REITs shareholders, the analysis demonstrates that the current expected after-tax risk premium for REITs generate a reasonable coe¢ cient of relative risk aversion. Employing a range of plausible stochastic tax burdens, the REITs shareholders’ coefficient of relative risk aversion is likely to fall within the interval from 4.3 to 6.3, a value signi…cantly lower than those reported in most of the prior studies for the general stock market.