A Behavioral Interpretation of the Nav Discount Puzzle in Listed Real Estate Companies

Executive Summary The net asset value (NAV) discount is a long standing puzzle in the listed real estate context. In this paper, we extend the literature's rational and noise trader explanations by exploring the influence of specific irrational behaviors. Based on behavioral biases identified in the stock and real estate markets, we hypothesize the existence of a relation between lagged NAV growth and the NAV discount. The findings provide initial evidence of trend-chasing behavior between the dual real estate markets. The results have broader implications for the perception of the relation between public and private real estate markets.