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Persistence of UK real estate returns: A Markov chain analysis

Author

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  • S L Lee

    (The University of Reading)

  • C W R Ward

    (Professor of Property Investment and Finance at the University of Reading)

Abstract

The persistence of investment performance is a topic of perennial interest to investors. Efficient Markets theory tells us that past performance cannot be used to predict future performance, yet investors appear to be influenced by the historical performance in making their investment allocation decisions. The problem has been of particular interest to investors in real estate; not least because reported returns from investment in real estate are serially correlated thus implying some persistence in investment performance. This paper applies the established approach of Markov chain analysis to investigate the relationship between past and present performance of UK real estate over the period 1981–96. The data are analysed by sector, region and size. Furthermore, some variations in investment performance classification are reported, and the results are shown to be robust.

Suggested Citation

  • S L Lee & C W R Ward, 2001. "Persistence of UK real estate returns: A Markov chain analysis," Journal of Asset Management, Palgrave Macmillan, vol. 1(3), pages 279-291, January.
    • Handle: RePEc:pal:assmgt:v:1:y:2001:i:3:d:10.1057_palgrave.jam.2240022
    DOI: 10.1057/palgrave.jam.2240022
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    Citations

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    Cited by:

    1. Camilo Serrano & Martin Hoesli, 2010. "Are Securitized Real Estate Returns more Predictable than Stock Returns?," The Journal of Real Estate Finance and Economics, Springer, vol. 41(2), pages 170-192, August.
    2. Johnson, Michael P. & Solak, Senay & Drew, Rachel Bogardus & Keisler, Jeffrey, 2013. "Property value impacts of foreclosed housing acquisitions under uncertainty," Socio-Economic Planning Sciences, Elsevier, vol. 47(4), pages 292-308.
    3. Charles Ka Yui Leung & Patrick Wai Yin Cheung & Erica Jiajia Ding, 2008. "Intra-metropolitan Office Price and Trading Volume Dynamics: Evidence from Hong Kong," International Real Estate Review, Global Social Science Institute, vol. 11(2), pages 47-74.
    4. Leslie, Gordon W., 2021. "Who benefits from ratepayer-funded auctions of transmission congestion contracts? Evidence from New York," Energy Economics, Elsevier, vol. 93(C).
    5. Steven P. Devaney & Stephen L. Lee & Michael S. Young, 2007. "Serial persistence in individual real estate returns in the UK," Journal of Property Investment & Finance, Emerald Group Publishing Limited, vol. 25(3), pages 241-273, May.

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