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Re-examining the modelling of yields in a volatile market  by Ben Burston

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Re-examining the modelling of yields in a volatile market  by Ben Burston DTZ, 125 Old Broad Street, London, EC2N 2BQ Tel: +44 (0)20 3296 3011 Email: [email protected] Kostis Papadopoulos DTZ, 125 Old Broad Street, London, EC2N 2BQ

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slide1

Re-examining the modelling of yields in a volatile market

  •  by
  • Ben Burston
  • DTZ, 125 Old Broad Street, London, EC2N 2BQ
  • Tel: +44 (0)20 3296 3011 Email: [email protected]
  • Kostis Papadopoulos
  • DTZ, 125 Old Broad Street, London, EC2N 2BQ
  • Tel: +44 (0)20 3296 2329 Email: [email protected]
  • &
  • Tony McGough
  • DTZ, 125 Old Broad Street, London, EC2N 2BQ
  • Tel: +44 (0)20 3296 2314 Email: [email protected]
  • Paper presented at the 17th European real Estate Society Conference,
  • Milan, Italy – June 23rd 26th 2010.
  • Draft paper: Not to be quoted without permission from the authors.
slide2

Introduction

  • Methodology
  • Model
  • Impact of global volatility
  • Implications of modelling output
slide3

Introduction

Methodology

  • Previous model (Hicks & McGough 2005) provided a framework for our yield analysis
  • Previous equation looks at impact of
    • Rental expectations
    • Bond prices
    • Fixed risk premia via constant
  • Present model
    • Incorporates transaction volumes
    • Money supply
slide7

Data used

  • Variables

RR = real rents

Bond = 10 year government bond

Divy = Dividend Yield

Trvn = transaction volume numbers

RMoney = Real money supply

  • Time Series Quarterly 1997 2009
  • London Office rents
slide8

Yield equation to 2003 - bonds

Source :DTZ Research

slide9

Yield equation to 2003 - bonds

Source :DTZ Research

slide11

Full model to 2009 Q4 - bonds

Source :DTZ Research

slide13

Full model to 2009 Q4 – key findings

  • Changes in relationships
  • Bond relationship turns negative
  • Dividend yield relationship insignificant
  • Serial correlation appears
  • Why?
  • Chasing the yield
  • Outward movement of yields following financial crisis

Source :DTZ Research

slide14

Full model to 2009 Q4 – solutions

  • Need to incorporate other variables into this analysis
  • In particular risk measures and time varying premia

Source :DTZ Research

slide16

Full model to 2009 Q4

Source :DTZ Research

slide17

Full model to 2009 Q4

Source :DTZ Research

slide18

Conclusions

London (City)

  • Structural break found in yield relationships using old methodology
  • Previous relationships have changed in the current environment
  • More sophisticated modelling of risk needed to take into account more volatile risk markets

London (West End)

Madrid

Paris

Sydney

Frankfurt

New York

Shanghai

Tokyo

Source: DTZ Research

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