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Serial Persistence in Individual Real Estate Returns in the UK

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Author Info

  • Steven Devaney

    ()
    (Department of Real Estate & Planning, University of Reading Business School)

  • Stephen Lee

    (Department of Real Estate & Planning, University of Reading)

  • Michael Young

    (RREEF, San Francisco)

Abstract

Persistence of property returns is a topic of perennial interest to fund managers as it suggests that choosing those properties that will perform well in the future is as simple as looking at those that performed well in the past. Consequently, much effort has been expended to determine if such a rule exists in the real estate market. This paper extends earlier studies in US, Australian, and UK markets in two ways. First, this study applies the same methodology originally used in Young and Graff (1996) making the results directly comparable with those in the US and Australian property markets. Second, this study uses a much longer and larger database covering all commercial property data available from the Investment Property Databank (IPD), for the years 1981 to 2002 for as many as 216,758 individual property returns. While the performance results of this study mimic the US and Australian results of greater persistence in the extreme first and fourth quartiles, they also evidence persistence in the moderate second and third quartiles, a notable departure from previous studies. Likewise patterns across property type, location, time, and holding period are remarkably similar leading to the conjecture that behaviors in the practice of commercial real estate investment management are themselves deeply rooted and persistent and perhaps influenced for good or ill by agency effects.

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File URL: http://www.reading.ac.uk/LM/LM/fulltxt/1304.pdf
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Bibliographic Info

Paper provided by Henley Business School, Reading University in its series Real Estate & Planning Working Papers with number rep-wp2004-13.

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Length: 32 pages
Date of creation: 2004
Date of revision:
Handle: RePEc:rdg:repxwp:rep-wp2004-13

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Postal: PO Box 218, Whiteknights, Reading, Berks, RG6 6AA
Phone: +44 (0) 118 378 8226
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Web page: http://www.henley.reading.ac.uk/
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  1. Julian Diaz, III, 1997. "An Investigation into the Impact of Previous Expert Value Estimates on Appraisal Judgment," Journal of Real Estate Research, American Real Estate Society, American Real Estate Society, vol. 13(1), pages 57-66.
  2. Richard A. Graff & Michael S. Young, 1999. "The Magnitude of Random Appraisal Error in Commercial Real Estate Valuation," Journal of Real Estate Research, American Real Estate Society, American Real Estate Society, vol. 17(1), pages 33-54.
  3. Quan, Daniel C & Quigley, John M, 1991. "Price Formation and the Appraisal Function in Real Estate Markets," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 4(2), pages 127-46, June.
  4. Daniel C. Quan & John M. Quigley, 1989. "Inferring an Investment Return Series for Real Estate from Observations on Sales," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 17(2), pages 218-230.
  5. Neil Crosby & Anthony Lavers & John Murdoch, 1998. "Property valuation variation and the 'margin of error' in the UK," Journal of Property Research, Taylor & Francis Journals, Taylor & Francis Journals, vol. 15(4), pages 305-330, January.
  6. Julian Diaz & Marvin L. Wolverton, 1998. "A Longitudinal Examination of the Appraisal Smoothing Hypothesis," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 26(2), pages 349-358.
  7. Michael S. Young & Richard A. Graff, 1996. "Systematic Behavior in Real Estate Investment Risk: Performance Persistence in NCREIF Returns," Journal of Real Estate Research, American Real Estate Society, American Real Estate Society, vol. 12(3), pages 369-382.
  8. Richard A. Graff & Michael S. Young, 1997. "Serial Persistence in Equity REIT Returns," Journal of Real Estate Research, American Real Estate Society, American Real Estate Society, vol. 14(3), pages 183-214.
  9. James R. Follairi, 1989. "Inferring an Investment Return Series for Real Estate from Observations on Sales," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 17(2), pages 231-234.
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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, Springer, vol. 41(2), pages 170-192, August.
  2. Geoff Willcocks, 2009. "UK Housing Market: Time Series Processes with Independent and Identically Distributed Residuals," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 39(4), pages 403-414, November.
  3. Shaun Bond & Paul Mitchell, 2010. "Alpha and Persistence in Real Estate Fund Performance," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 41(1), pages 53-79, July.

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