The Dynamics of Asset Prices and Transaction Activity in Illiquid Markets: The Case of Private Commercial Real Estate

29 Pages Posted: 7 Aug 2009 Last revised: 10 Apr 2015

See all articles by David C. Ling

David C. Ling

University of Florida - Warrington College of Business Administration

Gianluca Marcato

Henley Business School - University of Reading

Patrick M. McAllister

University of Reading - Department of Real Estate and Planning

Date Written: October 2008

Abstract

This paper investigates the relationship between capital flows, turnover and returns for the UK private real estate market. We examine a number of possible implication of capital flows and turnover on capital returns testing for evidence of a price pressure effect, 'return chasing' behaviour and information revelation. The main tool of analysis is a panel vector autoregressive (VAR) regression model in which institutional capital flows, turnover and returns are specified as endogeneous variables in a two equation system in which we also control for macro-economic variables. Data on flows, turnover and returns are obtained for the 10 market segments covering the main UK commercial real estate sectors. Our results do not support the widely-held belief among practitioners that capital flows have a 'price pressure' effect on property prices. However, we do find a significant positive relationship between lagged turnover and contemporaneous capital returns, suggesting that asset turnover provides increased price revelation which, in turn, reduces investment risk and increases property values.

Keywords: asset pricing, illiquidity, transaction activity, private real estate markets

Suggested Citation

Ling, David Curtis and Marcato, Gianluca and McAllister, Patrick M., The Dynamics of Asset Prices and Transaction Activity in Illiquid Markets: The Case of Private Commercial Real Estate (October 2008). Journal of Real Estate Finance and Economics, Vol. 39, No. 3, 2009, Available at SSRN: https://ssrn.com/abstract=1443306

David Curtis Ling

University of Florida - Warrington College of Business Administration ( email )

P.O. Box 117168
Gainesville, FL 32611
United States
352-392-9307 (Phone)
352-392-0301 (Fax)

Gianluca Marcato (Contact Author)

Henley Business School - University of Reading ( email )

Department of Real Estate & Planning
Reading, RG6 6UD
United Kingdom
+44 (0)118 3788178 (Phone)
+44 (0)118 3788172 (Fax)

Patrick M. McAllister

University of Reading - Department of Real Estate and Planning ( email )

Reading RG6 6AW
United Kingdom

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