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The Dynamics and Volatility of Commercial and Residential Property Prices: Theory and Evidence

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Author Info
Kamhon Kan
Sunny Kai-Sun Kwong
Charles Ka-Yui Leung

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Abstract

This article investigates the dynamics of property prices and their interaction with output growth in a general equilibrium model. Closed form solutions and testable hypotheses are derived from a mildly restricted version of the model. The testable hypotheses are broadly supported empirically. In particular, (1) the volatility of commercial property prices is higher than that of residential property prices, (2) each of the lagged, contemporary, and forward commercial property prices is positively correlated with residential property prices, (3) the contemporaneous covariance between the two property prices is larger than the lagged covariance, and (4) output growth is positively correlated with both property prices. These results are consistent with simulations results that are based on a more general specification of the model. Copyright Blackwell Publishers, 2004

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1085-9489.2004.00329.x
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Publisher Info
Article provided by Blackwell Publishing in its journal Journal of Regional Science.

Volume (Year): 44 (2004)
Issue (Month): 1 ()
Pages: 95-123
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Handle: RePEc:bla:jregsc:v:44:y:2004:i:1:p:95-123

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-4146

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  1. John Krainer & Mark Spiegel & Nobuyoshi Yamori, 2005. "Asset price declines and real estate market illiquidity: evidence from Japanese land values," Working Paper Series 2004-16, Federal Reserve Bank of San Francisco. [Downloadable!]
  2. Charles Leung & Dandan Feng, 2005. "What Drives the Property Price-Trading Volume Correlation? Evidence from a Commercial Real Estate Market," The Journal of Real Estate Finance and Economics, Springer, vol. 31(2), pages 241-255, September. [Downloadable!] (restricted)
  3. Charles Ka Yui Leung, 2005. "Equilibrium Correlation of Asset Price and Return," Discussion Papers 00017, Chinese University of Hong Kong, Department of Economics. [Downloadable!]
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  4. Charles Ka Yui Leung & Kelvin Siu Kei Wong & Patrick Wai Yin Cheung, 2007. "On the Stability of the Implicit Prices of Housing Attributes: A Dynamic Theory and Some Evidence," International Real Estate Review, Asian Real Estate Society, vol. 10(2), pages 66-93. [Downloadable!]
  5. Andra C. Ghent & Michael T. Owyang, 2009. "Is housing the business cycle? evidence from U.S. cities," Working Papers 2009-007, Federal Reserve Bank of St. Louis. [Downloadable!]
  6. Charles Ka Yui Leung & Dandan Feng, 2004. "Testing Alternative Theories of Property Price-Trading Volume with Commercial Real Estate Market Data," Discussion Papers 00003, Chinese University of Hong Kong, Department of Economics. [Downloadable!]
    Other versions:
  7. Nan-Kuang Chen & Charles Leung, 2008. "Asset Price Spillover, Collateral and Crises: with an Application to Property Market Policy," The Journal of Real Estate Finance and Economics, Springer, vol. 37(4), pages 351-385, November. [Downloadable!] (restricted)
  8. Yoshida, Jiro, 2007. "Technology Shocks and Asset Price Dynamics: The Role of Housing in General Equilibrium," MPRA Paper 6271, University Library of Munich, Germany, revised 05 Mar 2008. [Downloadable!]
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