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The Journal of Real Estate Finance and Economics

Erschienen in:

01.07.2010

Alpha and Persistence in Real Estate Fund Performance

verfasst von: Shaun A. Bond, Paul Mitchell

Erschienen in: The Journal of Real Estate Finance and Economics | Ausgabe 1/2010

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Abstract

This paper investigates whether fund managers investing in the direct real estate market can systematically and persistently deliver superior risk-adjusted returns. The research that has been published has typically focused on the performance of managers trading public real estate securities. Our study draws on a unique data set of commercial real estate funds collated by the Investment Property Databank (IPD) in the United Kingdom, covering up to 280 funds over the period 1981 to 2006. The widespread finding is that very few managers appear to be able to generate excess risk-adjusted returns. Furthermore, there is little evidence of performance persistence in either fund returns or risk-adjusted fund returns.

Vorheriger Artikel Repeat Sales Index for Thin Markets

Nächster Artikel Asymmetric Adjustment in the City of London Office Market

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Grossman and Stiglitz (1980) argue that if information is costly, the usual assumption of the efficient markets hypothesis, that prices reflect all available information, may not hold. It is only worthwhile for investors to acquire information if they obtain a return from doing so.

The appraisal-smoothing problem in real estate has been extensively discussed in the literature, see Bond and Hwang (2007) for a summary of the literature. However, given the long-term nature of real estate investors and the sample horizons used in this study, such short term persistence effects may not be relevant to the analysis.

That is, the best forecasters may keep their forecasts private, and owners and managers may have other objectives in submitting their forecasts, for instance, to make their region look more attractive to investors.

It would have been preferable to use higher-frequency data. However, in the UK such data is much less extensive than annual data, relating to a small number of funds on a monthly basis (around 70 compared to over 200 annually) and to a short period (2001 onwards) on a quarterly basis. There are also indications that higher-frequency data would not have enhanced the analysis.

See Chan et al. (2006) for a detailed survey of risk-adjusted benchmarking of fund manager performance.

The risk-free rate for each year is determined by the quarterly average three-month Treasury bill rate.

As explained in “The Data”, the IPD indices are derived from details voluntarily submitted to the IPD by funds for benchmarking and performance measurement and attribution.

This is inferred by comparing the performances of the evaluation and ranking periods of the same period (e.g. the set of funds in the evaluation period 1992–1997 with those of the ranking period 1992–1997)—the latter includes the funds created during the previous ranking period.

If there was no persistence, the probabilities of remaining above or below median is 25%. It does not equal 50% in this calculation as expired funds are included in the analysis.

The lagged value of alpha is only significant (at the 10% level) in one of the four periods considered for analysis; lagged performance was significant at the 10% level in two out of the four 5-year periods considered.

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Titel: Alpha and Persistence in Real Estate Fund Performance
verfasst von: Shaun A. Bond
Paul Mitchell
Publikationsdatum: 01.07.2010
Verlag: Springer US
Erschienen in: The Journal of Real Estate Finance and Economics / Ausgabe 1/2010
Print ISSN: 0895-5638
Elektronische ISSN: 1573-045X
DOI: https://doi.org/10.1007/s11146-009-9230-y

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