Market Efficiency and Asset Pricing

Colin A. Jones () and Edward Trevillion ()
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Colin A. Jones: Heriot-Watt University
Edward Trevillion: Heriot-Watt University

Chapter Chapter 6 in Real Estate Investment, 2022, pp 109-127 from Springer

Abstract: Abstract This chapter examines how efficient markets are at reflecting price and price movements. Market efficiency is defined as the degree to which market prices reflect all available relevant information. It can have a significant bearing on how the prices of assets are established, and this chapter examines market efficiency as it applies to the property market. The efficient market hypothesis (EMH) is outlined along with ways to test the information efficiency of the property market. In this context, a major factor affecting whether the EMH is sufficient to describe markets is the extent to which investor behaviour impacts on the market overall. This chapter therefore examines rational and irrational behaviour in the marketplace. It revisits the issue of mispricing of property assets and the part that valuations and their accuracy plays. This chapter examines the consequences of overoptimism, a symptom of irrational behaviour and how irrational behaviour can impact on the stability of property markets and can result in severe financial penalties. To underline theory, this chapter undertakes a case study which analyses the UK property market during and after the GFC of 2007–2008 as an example of irrational behaviour in commercial property markets.

Keywords: Efficient markets; Tests for market efficiency; Property market efficiency; Pricing; Mispricing; Valuation accuracy; Market transparency; Irrational markets (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-031-00968-6_6

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DOI: 10.1007/978-3-031-00968-6_6

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