Scandinavian Working Papers in Economics

Working Paper Series,
Royal Institute of Technology, Department of Real Estate and Construction Management & Banking and Finance

No 13/17: Price discovery over space in office markets

Lovisa Högberg (), Svante Mandell () and Olof Netzell ()
Additional contact information
Lovisa Högberg: Department of Real Estate and Construction Management, Royal Institute of Technology, Postal: Department of Real Estate and Construction Management , Royal Institute of Technology, Brinellvägen 1, 100 44 Stockholm, Sweden
Svante Mandell: Department of Real Estate and Construction Management, Royal Institute of Technology, Postal: Department of Real Estate and Construction Management , Royal Institute of Technology, Brinellvägen 1, 100 44 Stockholm, Sweden
Olof Netzell: Department of Real Estate and Construction Management, Royal Institute of Technology, Postal: Department of Real Estate and Construction Management , Royal Institute of Technology, Brinellvägen 1, 100 44 Stockholm, Sweden

Abstract: This paper investigates price discovery over space in real estate office markets. It is argued that due to geographic variation in the costs and benefits of obtaining information, peripheral market segments move more sluggishly than central segments. In order to test this idea empirically Swedish office cap rates and total returns during the period 1984-2012 are investigated. Support for the pattern is found. These ex post observable patterns in cap rates and total returns do not constitute arbitrage opportunities since they are not instantaneously observable.

Keywords: Price discovery; ripple effect; cap rates; returns

JEL-codes: R11; R12; R33

21 pages, October 30, 2013

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