Cross-sectional variation of rental yields in the housing market : evidence from Finland

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dc.contributor Aalto University en
dc.contributor Aalto-yliopisto fi Terho, Tomi 2011-11-14T11:23:34Z 2011-11-14T11:23:34Z 2010
dc.description.abstract PURPOSE OF THE STUDY The purpose of this thesis is to investigate whether rental yields in the housing market exhibit cross sectional variation, and if such variation does exist, what is causing it. Our hypothesis is that net rental yield declines as asset prices increase, a violation of the no arbitrage condition and thus, of the efficient markets hypothesis. Though this phenomenon has previously been documented, it has not been analyzed from an investments perspective. Therefore, we attempt to open up discussion on the causes and implications of cross-sectional variation of rental yields. DATA The main data in this study comprises of the Oikotie housing advertisement database, a large Finnish online home brokerage. The dataset includes all the data that advertisers enter when advertising a dwelling for sale or for rent. The data set covers a time period that begins in January 2002 and ends in September 2009 and after a process of matching advertisements of dwelling for rent to for sale advertisements, includes altogether 31,864 dwellings or dwelling pairs with data on both asking rent and sales price as well as several other dwelling-specific characteristics. Additional data has been gathered from the Statistics Finland database, the Helsinki Urban Facts database and the Google Maps service. RESULTS The results indicate that cross-sectional variation of rental yield exists and that it is strongly negative relationship with asset value. Thus it seems dwelling prices and rents are not considered simultaneously with a set rental yield in mind, but rather through separate processes. The difference in yields is economically significant, as the mean yield of the highest and lowest decile differ by up to 4 %. In our regression analyses of net rental yields, we find statistically significant coefficients for variables reflecting dwelling size, age, type, location and many other factors, while controlling for time and macro-level factors such as unemployment and average income in the area. Although most of these coefficients are intuitive when considering rents and prices separately, the fact that net rental yield varies so greatly within a single market means that opportunities for profitable investment strategies exist, and are accessible even by using rather simple rules of thumb. en
dc.format.extent 95
dc.format.mimetype application/pdf en
dc.language.iso en en
dc.title Cross-sectional variation of rental yields in the housing market : evidence from Finland en
dc.type G2 Pro gradu, diplomityö fi Kauppakorkeakoulu fi School of Economics en
dc.contributor.department Department of Accounting and Finance en
dc.contributor.department Laskentatoimen ja rahoituksen laitos fi
dc.subject.keyword rental yield
dc.subject.keyword housing market
dc.subject.keyword cross-sectional variation
dc.identifier.urn URN:NBN:fi:aalto-201111181397
dc.type.dcmitype text en
dc.programme.major Finance en
dc.programme.major Rahoitus fi
dc.type.ontasot Master's thesis en
dc.type.ontasot Pro gradu tutkielma fi
dc.subject.helecon rahoitus
dc.subject.helecon financing
dc.subject.helecon kiinteistöt
dc.subject.helecon real estates
dc.subject.helecon asunnot
dc.subject.helecon apartments
dc.subject.helecon markkinat
dc.subject.helecon markets
dc.subject.helecon vuokra
dc.subject.helecon rent
dc.ethesisid 12353 2010-06-16
dc.location P1 I

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