Systematic Behavior in Real Estate Investment Risk: Performance Persistence in NCREIF Returns

Serial dependence of total annual returns in the NCREIF database is shown to be statistically significant in the first and fourth quartiles of disaggregated data between 1978 and 1994. More precisely, superior performance is generally followed by continued superior performance, and inferior performance is generally followed by continued inferior performance. In contrast, there is virtually no evidence to support serial dependence in the second or third quartiles, whether combined or taken separately. The empirical rejection of serial independence among real estate returns calls into question the conclusions of research based upon models that incorporate the assumption of serial independence.