Serial Persistence in Disaggregated Australian Real Estate Returns

Persistence of UK real estate returns: A Markov chain analysis

“…Serial persistence in real estate returns has been examined in the direct real estate markets in the USA Graff, 1996, 1997), Australia (Graff, Harrington and Young, 1999) and in the USA indirect real estate market (using stock price returns from Real Estate Investment Trusts, REITs), Graff and Young (1997). The approach adopted for testing for persistence was the same in each case.…”

“…The Australian study (Graff, Harrington and Young, 1999) used annual data over the period from 1985 to 1997 from the Property Council of Australia database. The data were decomposed into the three property types: Office, Retail and Industrials.…”

“…The existence of such persistence in real estate returns would seem to imply some market inefficiency. Some might argue that persistence in real estate returns results from the way total returns are calculated from appraisal based valuations and the serial persistence that this imparts to returns through time; an argument rejected by Graff, Harrington and Young (1999). Others would suggest that the real estate markets are inefficient due to high search and transaction costs involved in the purchasing and selling of property.…”

“…The findings of Webb (1990, 1993), Young and Graff (1996) and Byrne and Lee (1997) that real estate returns are not normally distributed would confirm this argument. Graff, Harrington and Young (1999) claim that research based upon models that incorporate the assumption of independence is of questionable value to real estate investors.…”

“…In apparent support of this sentiment empirical evidence indicates that security returns may be predictable over short horizons (Grinblatt and Titman, 1989, Hendricks et al, 1993, Malkiel, 1995, Goetzmann and Ibbotson, 1994, Brown and Goetzmann, 1995. Moreover, as one moves from the well traded and liquid markets for stocks and bonds into the real estate market, several empirical studies suggest that real estate returns are even more persistent over a number of years, see Graff (1996, 1997) and Graff, Harrington and Young (1999).…”