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A Test of a Buying Rule for “Underpriced” Apartment Buildings

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  • Jane Londerville

Abstract

Apartment‐building repeat‐sales data are used to test a trading rule. Property values are estimated through regression; if the actual price is less than the estimated value, the property may be “undervalued.” Returns are calculated for these “undervalued” properties and adjusted for risk using the Sharpe ratio. A test is done of whether these ratios are significantly different for different portfolios. The “undervalued” properties have higher appreciation returns, but once these are adjusted for risk, the differences in returns are not significant. The paper contributes to the real estate efficiency literature and suggests a workable method for comparing the performance of real estate portfolios on a risk‐adjusted basis.

Suggested Citation

  • Jane Londerville, 1998. "A Test of a Buying Rule for “Underpriced” Apartment Buildings," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 26(3), pages 537-553, September.
    • Handle: RePEc:bla:reesec:v:26:y:1998:i:3:p:537-553
    DOI: 10.1111/1540-6229.00756
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    Cited by:

    1. Ying-Hui Chiang & Yuan Ku & Feng Liu & Chin-Oh Chang, 2019. "House Price Dispersion in Taipei Residential Communities," International Real Estate Review, Global Social Science Institute, vol. 22(1), pages 109-129.

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