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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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  • Patric Hendershott & Robert J. Hendershott & Bryan D. MacGregor, 2005. "Evidence on Rationality in Commercial Property Markets: An Interpretation and Critique," NBER Working Papers 11329, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:11329
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    Cited by:

    1. Angela Black & Patricia Fraser & Martin Hoesli, 2006. "House Prices, Fundamentals and Bubbles," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(9‐10), pages 1535-1555, November.
    2. Angela Black & Patricia Fraser & Martin Hoesli, 2006. "House Prices, Fundamentals and Bubbles," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(9‐10), pages 1535-1555, November.
    3. Oliver Holtemoller & Rainer Schulz, 2000. "Apartment House Prices and the Macroeconomy: Theoretical Analysis and Empirical Evidence," Regional and Urban Modeling 283600036, EcoMod.

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    JEL classification:

    • G0 - Financial Economics - - General

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