Stickiness Or Instability: Spatial Variations In The Efficiency Of The Property Market

This paper addresses two issues about the efficiency of the property market. It has long been argued that as data in the property market is based on valuations it has a tendency toward smoothing or stickiness. The research to date to assess this argument has been based on national perspectives. However, the accuracy of valuations will partially depend on local factors, for example valuations are likely to be more sticky in thin markets, i.e., suggesting a role for the scale of a local market. Similarly while investors had perfect foresight then yields would be determined by rational expectations on rental trends (and future yield changes). Again the responsiveness of yields while driven by national factors could similarly depend on the characteristics of a local market. This paper examines the quantity of information available in the property market at aggregated and disaggregated levels. It tests for market efficiency at different spatial scales of analysis. Specifically we test whether thin markets compromise efficiency and hence have a negative impact on the marketís investment attractiveness. Key Words Market Efficiency Information Cities Valuations Smoothing UK