Dynamics of Asset Prices and Transaction Activity in Illiquid Markets: the Case of Private Commercial Real Estate |
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Authors: | David C Ling Gianluca Marcato Pat McAllister |
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Institution: | (1) Department of Finance, Insurance and Real Estate, Center for Real Estate Studies, Warrington, College of Business, University of Florida, P.O. Box 117168, Gainesville, FL 32611-7168, USA;(2) School of Real Estate & Planning, Henley Business School, University of Reading, Whiteknights, Reading, RG6 6AW, UK |
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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 implications 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 endogenous 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 ten 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. |
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