Case 1

     The purpose of Linneman's study was to test the trade rule and Sharpe ration. The researchers were trying to identify whether or not negative residuals on property were the result of undervaluation and were they the cause for an opportunity to make extra profits. The rationale of the trade rule is that property price adjustment is a function of the market and is related to the value of the neighborhood's physical characteristics. Is there the chance to earn excess profits on undervalued properties based on the assumption of inefficiency in the market? The risk-adjusted return performance is notably different on undervalued property, creating an opportunity to earn excess returns. This study used data from a sample of apartment building sales in Vancouver, Canada. After...