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

33 Pages Posted: 14 Jun 2005 Last revised: 17 Jun 2021

See all articles by Patric H. Hendershott

Patric H. Hendershott

University of Aberdeen - Centre for Property Research; National Bureau of Economic Research (NBER)

Robert J. Hendershott

Santa Clara University

Bryan MacGregor

University of Aberdeen - Centre for Property Research

Date Written: May 2005

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.

Suggested Citation

Hendershott, Patric H. and Hendershott, Robert J. and MacGregor, Bryan D., Evidence on Rationality in Commercial Property Markets: An Interpretation and Critique (May 2005). NBER Working Paper No. w11329, Available at SSRN: https://ssrn.com/abstract=720415

Patric H. Hendershott (Contact Author)

University of Aberdeen - Centre for Property Research ( email )

Aberdeen AB24 2UF
Scotland

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Robert J. Hendershott

Santa Clara University ( email )

Santa Clara, CA 95053
United States
408-554-4698 (Phone)
408-554-4029 (Fax)

Bryan D. MacGregor

University of Aberdeen - Centre for Property Research ( email )

Aberdeen AB24 2UF
Scotland
44-1224-272-356 (Phone)
44-1224-273-487 (Fax)

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