Abstract
The persistence of investment performance is a topic of perennial interest to investors. Efficient Markets theory tells us that past performance cannot be used to predict future performance, yet investors appear to be influenced by the historical performance in making their investment allocation decisions. The problem has been of particular interest to investors in real estate; not least because reported returns from investment in real estate are serially correlated thus implying some persistence in investment performance. This paper applies the established approach of Markov chain analysis to investigate the relationship between past and present performance of UK real estate over the period 1981–96. The data are analysed by sector, region and size. Furthermore, some variations in investment performance classification are reported, and the results are shown to be robust.
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