Testing the Dividend-Ratio Model on Real Estate Assets

C. Y. Yiu and C. M. Hui

Journal of Real Estate Practice and Education, 2006, vol. 9, issue 1, 19-35

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.

Date: 2006
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DOI: 10.1080/10835547.2006.12091619

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