This paper reports the results of an efficient markets test of the Dallas-Fort Worth office properties market.AR/MA models using a comprehensive data set did not produce superior forecasts. The results provide further evidence of the efficiency of real estate markets. Fama (1970) characterizes markets as weak-form, semistrong-form, and strongform efficient. The weak-form efficient market hypothesis (EMH) states that current prices reflect the information in historical prices. That is, investors cannot improve their ability to select investments by knowing or analyzing past prices.
Early real estate efficient market research was often descriptive or illustrative. Several authors have investigated the relationship between real estate investment yields and yields in the money and capital markets. As Draper and Findlay (1982) note, many of these studies, especially those applying the capital asset pricing model to real estate, implicitly assume market efficiency. 1
The extant weak-form empirical tests of real estate market efficiency support the weak-form EMH for real estate markets. 2 Guntermann and Smith (1987) used FHA and Census of Housing data on land and housing prices in 57 metropolitan areas to test the weak-form EMH in the single-family housing market. Using annual land and property prices per square foot the authors constructed annual holding period returns by metropolitan area. They rank-ordered returns and computed cross-correlation coefficients between holding periods for various years. Efforts to develop a trading rule to take advantage of possible inefficiencies were unsuccessful. The authors conclude that residential real estate markets are weak-form efficient. 3
In the study most directly related to ours, Gau (1984) examines weak-form efficiency by developing price series from apartment and commercial transactions in Vancouver, British Columbia, for January 1971 through December 1980. He hypothesizes that, if significant autocorrelations exist across the lagged values of