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Testing the Dividend-Ratio Model on Real Estate Assets

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  • C. Y. Yiu
  • C. M. Hui

Abstract

Campbell and Shiller’s (1988) dividend-ratio model has long been adopted in various asset markets. It improves previous methods by incorporating time-varying discount rates theoretically. However, it is rarely applied to real estate markets, nor has its validity been tested on real estate assets. This paper uses the dividend-ratio model to examine the long-term relationship between the market capitalization rate and the growth-adjusted discount rate in the housing markets in Hong Kong. The empirical results show a significant and positive long-term relationship between these two series, which provides evidence that cap rate can reflect the market conditions in the long run and that a dynamic discounting model can help predict long-term cap rate.

Suggested Citation

  • C. Y. Yiu & C. M. Hui, 2006. "Testing the Dividend-Ratio Model on Real Estate Assets," Journal of Real Estate Practice and Education, Taylor & Francis Journals, vol. 9(1), pages 19-35, January.
    • Handle: RePEc:taf:rjrpxx:v:9:y:2006:i:1:p:19-35
    DOI: 10.1080/10835547.2006.12091619
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