Spectral analysis of real estate and financial assets markets
| Date | 01 March 1999 |
| DOI | https://doi.org/10.1108/14635789910252909 |
| Pages | 61-74 |
| Published date | 01 March 1999 |
| Author | Patrick Wilson,John Okunev |
| Subject Matter | Property management & built environment |
Academic papers:
Real estate and
financial assets
61
ACADEMIC PAPERS
Spectral analysis of real
estate and financial assets
markets
Patrick Wilson
School of Finance and Economics, University of Technology, Sydney,
Australia, and
John Okunev
School of Banking and Finance, University of New South Wales,
Australia
Keywords Assets, Markets, Real estate
Abstract Understanding cyclical activity is an important component of efficient portfolio
management. Property appraisal models that do not explicitly take into account cyclical
fluctuations may produce unrealistic valuation estimates resulting in property assets being
incorrectly added to or removed from the general investment portfolio. In this paper we use
conventional spectral analysis techniques to examine property and financial assets for evidence of
cycles and co-cycles. One finding is that the very pronounced cyclical patter ns that appear in direct
real estate markets and the economy as a whole are very much less obvious once they have filtered
through to securitised property markets and financial assets markets.
Introduction
Understanding cyclical activity is an important component of efficient portfolio
management. For instance Born and Pyhrr (1994) found that traditional
appraisal models that did not explicitly take cyclical fluctuations into account
were likely to produce unrealistic valuation estimates – properties being over-
or undervalued relative to true market conditions. A clear implication of such
unrealistic valuations is that physical property assets may be incorrectly added
to or subtracted from a general investment portfolio. In addition to this it is also
reasonable to expect that cyclical activity on the physical property market may
be expected to filter through to the securitised property market. That is, it is
reasonable to expect that changes in macroeconomic fundamentals will impact
on general economic activity and on particular areas of economic activity, such
as property investment and the stock market. That the physical (as opposed to
the securitised) property market follows a somewhat similar cyclical pattern to
Journal of Property Investment &
Finance, Vol. 17 No. 1, 1999,
pp. 61-74. © MCBUniversity Press,
1463-578X
The authors would like to express their appreciation to Dr Adam Kucera for his programming
expertise. The authors would also like to thank Stephen Brown, Nick French, Graeme Newell,
Charles Ward and James Webb for help in data provision. This research is supported by various
UTS Research Grants.
Received 1 January
1998
Revised 22 September
1998
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