Investor Rationality: Evidence from UK Property Capitalization Rates

39 Pages Posted: 25 Aug 2003 Last revised: 4 Nov 2010

See all articles by Patric H. Hendershott

Patric H. Hendershott

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

Bryan MacGregor

University of Aberdeen - Centre for Property Research

Date Written: August 2003

Abstract

Recent analyses have suggested the irrationality of investors in Australian and U.S. office properties. More specifically, investors have failed to raise capitalization rates sufficiently at rental cyclical peaks to account for the obvious mean reversion in real rents and thus have significantly overvalued properties. In this paper we analyze the determination of UK office and retail capitalization rates and provide evidence that these rates reflect rational expectations of mean reversion in future real cash flows. Moreover, these rates are linked to capitalization rates (dividend/price ratio) and expected dividend earnings growth as expected.

Suggested Citation

Hendershott, Patric H. and MacGregor, Bryan D., Investor Rationality: Evidence from UK Property Capitalization Rates (August 2003). NBER Working Paper No. w9894, Available at SSRN: https://ssrn.com/abstract=435422

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

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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