NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

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

NBER Working Paper No. 11329
Issued in May 2005
NBER Program(s):   AP   PE

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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Document Object Identifier (DOI): 10.3386/w11329

Published: 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.

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