Persistence of UK Real Estate Returns: A Markov
Chain Analysis
Lee, S.L. and Ward, C.W.R.
Working Papers in Land Management and Development 12/00
pp. 30
Abstract
The
persistence of investment performance is a topic of perennial interest
to investors. Efficient Markets theory tells us that past performance
can not be used to predict future performance yet investors appear to be
influenced by the historical performance in making their investment allocation
decisions. The problem has been of particular interest to investors
in real estate; not least because reported returns from investment in real
estate are serially correlated thus implying some persistence in investment
performance.
This paper applies the established approach of Markov Chain analysis
to investigate the relationship between past and present performance of
UK real estate over the period 1981 to 1996. The data are analysed
by sector, region and size. Furthermore some variations in investment
performance classification are reported and the results are shown to be
robust.
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