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Testing the efficiency of the Norwegian housing market

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  • Røed Larsen, Erling
  • Weum, Steffen
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    Abstract

    The question of whether or not the housing market is efficient is posed by an increasing number of economists, policymakers, homebuyers, and homesellers. This article tests the efficiency hypothesis on data from the housing market in Oslo over the period 1991-2002, employing the Case-Shiller time-structure test on a repeat-sales house price index and returns to housing. We demonstrate that both the repeat-sales house price index and returns contain time structure and that the housing market is characterized by inefficiencies. We also find, surprisingly, that the housing market consistently yields higher appreciation at lower volatility than the stock market over the period.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Urban Economics.

    Volume (Year): 64 (2008)
    Issue (Month): 2 (September)
    Pages: 510-517

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    Handle: RePEc:eee:juecon:v:64:y:2008:i:2:p:510-517

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    Web page: http://www.elsevier.com/locate/inca/622905

    Related research

    Keywords: Efficient market Excess returns House prices Housing market;

    References

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    1. Englund, Peter & Gordon, Tracy M. & Quigley, John M., 1999. "The Valuation of Real Capital: A Random Walk down Kungsgatan," Journal of Housing Economics, Elsevier, Elsevier, vol. 8(3), pages 205-216, September.
    2. Karl E. Case & Robert J. Shiller, 1988. "The Efficiency of the Market for Single-Family Homes," NBER Working Papers 2506, National Bureau of Economic Research, Inc.
    3. Dag Sommervoll, 2006. "Temporal Aggregation in Repeated Sales Models," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 33(2), pages 151-165, September.
    4. Hill, R. Carter & Sirmans, C. F. & Knight, John R., 1999. "A random walk down main street?," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 29(1), pages 89-103, January.
    5. Meese Richard & Wallace Nancy, 1994. "Testing the Present Value Relation for Housing Prices: Should I Leave My House in San Francisco?," Journal of Urban Economics, Elsevier, Elsevier, vol. 35(3), pages 245-266, May.
    6. Barkham, R. J. & Geltner, D. M., 1996. "Price Discovery and Efficiency in the UK Housing Market," Journal of Housing Economics, Elsevier, Elsevier, vol. 5(1), pages 41-63, March.
    7. Fama, Eugene F, 1991. " Efficient Capital Markets: II," Journal of Finance, American Finance Association, American Finance Association, vol. 46(5), pages 1575-617, December.
    8. Burton G. Malkiel, 2003. "The Efficient Market Hypothesis and Its Critics," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 17(1), pages 59-82, Winter.
    9. Englund, P. & Ioannides, Y.M., 1996. "House Price Dynamics: An International Empirical Perspective," Papers, Uppsala - Working Paper Series 1996-01, Uppsala - Working Paper Series.
    10. Shiller, Robert J, 1990. "Speculative Prices and Popular Models," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 4(2), pages 55-65, Spring.
    11. Erling Røed Larsen & Dag Einar Sommervoll, 2006. "The Impact on Rent from Tenant and Landlord Characteristics and Interaction," Discussion Papers, Research Department of Statistics Norway 467, Research Department of Statistics Norway.
    12. John Muellbauer & Gavin Cameron & John Muellbauer, 2006. "Was There A British House Price Bubble? Evidence from a Regional Panel," Economics Series Working Papers, University of Oxford, Department of Economics 276, University of Oxford, Department of Economics.
    13. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, American Finance Association, vol. 25(2), pages 383-417, May.
    14. Stuart S. Rosenthal, 1999. "Residential Buildings And The Cost Of Construction: New Evidence On The Efficiency Of The Housing Market," The Review of Economics and Statistics, MIT Press, MIT Press, vol. 81(2), pages 288-302, May.
    15. Dombrow, Jonathan & Knight, J R & Sirmans, C F, 1997. "Aggregation Bias in Repeat-Sales Indices," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 14(1-2), pages 75-88, Jan.-Marc.
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    Cited by:
    1. Schulz, Rainer & Werwatz, Axel, 2011. "Is there an equilibrating relationship between house prices and replacement cost? Empirical evidence from Berlin," Journal of Urban Economics, Elsevier, Elsevier, vol. 69(3), pages 288-302, May.
    2. Hjalmarsson, Erik & Hjalmarsson, Randi, 2009. "Efficiency in housing markets: Which home buyers know how to discount?," Journal of Banking & Finance, Elsevier, Elsevier, vol. 33(11), pages 2150-2163, November.
    3. Felix Schindler, 2013. "Predictability and Persistence of the Price Movements of the S&P/Case-Shiller House Price Indices," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 46(1), pages 44-90, January.
    4. Holly, Sean & Hashem Pesaran, M. & Yamagata, Takashi, 2011. "The spatial and temporal diffusion of house prices in the UK," Journal of Urban Economics, Elsevier, Elsevier, vol. 69(1), pages 2-23, January.

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