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Evidence on Rationality in Commercial Property Markets: An Interpretation and Critique

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  • Patric Hendershott
  • Robert J. Hendershott
  • Bryan D. MacGregor

Abstract

Periodic sharp sustained increases and then reversals in asset prices lead many to posit irrational price bubbles. The general case for irrationality is that real asset prices simply have moved too much given the future real cash flows the assets are reasonably likely to produce. A corollary for property is that observed mean reversion in real cash flows is not reflected in investor valuations, resulting in asset values being too high when real cash flows are high and vice versa. In this paper we interpret, critique and extend existing analyses of movements in real commercial property prices during the late 1980s and early 1990s.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11329.

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Date of creation: May 2005
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Publication status: published as Hendershott, Patric H., Robert J. Hendershott and Bryan D. MacGregor. "Evidence On Rationality In Commercial Property Markets: An Interpretation and Critique," Journal of Real Estate Literature, 2006, v14(2), 149-172.
Handle: RePEc:nbr:nberwo:11329

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