PERFORMANCE ASSESSMENT INDEXES AND CAPITAL ASSET PRICING MODELS

The applicability of capital asset pricing theory to the derivation of performance measures for real estate is examined. Although risk and return are fundamental concepts in modern finance they are seldom treated formally in non‐academic discussions of asset performance. An explanation is sought for the apparent failure to adopt formal models which have been developed and tested in the share markets for performance assessment in the real property market. The evidence suggests that it may not be the difference in approach pursued by real estate professionals toward valuation vis‐à‐vis share market analysts but rather the inapplicability of capital asset pricing models to real property returns that is the explanation for the lack of standardised measures.