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Modelling Price Dynamics In The Hong Kong Property Market

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Author Info
Sherry Zhefang ZHOU () (Management Sciences Department City University of Hong Kong, Hong Kong)
Helen Xiaohui BAO () (Department of Land Economy University of Cambridge, United Kingdom)
Abstract

The property market in Hong Kong plays an important role in the political, social and economic life of this vibrant city. Understanding the dynamics of the market is essential to guide government policy making and investment decisions. Using data collected between 1993 and 2006, this study investigates the monthly returns, volatilities, and time-varying correlations in the residential, office, and retail property markets in Hong Kong. A vector autoregressive (VAR) model is used to examine the conditional mean, and a multivariate generalized autoregressive conditional heteroscedasticity (MGARCH) model is adopted to analyze the conditional variance. The dynamic conditional correlation (DCC) approach is utilized to specify the MGARCH model. All of the property types show strong auto- and cross-correlations, which indicates that the sectors relate to each other closely. All three sectors have higher volatilities when major political and economic events occur. The findings reveal the possibility of balancing investment portfolios between the three sectors in the Hong Kong property market. However, exposure to the residential sector may reduce the chance of investment diversification because of the higher correlation of this sector with the other property sectors.

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Publisher Info
Article provided by Research Centre in Public Administration and Public Services, Bucharest, Romania in its journal Cercetari practice si teoretice in managementul urban/Theoretical and Empirical Researches in Urban Management.

Volume (Year): 4 (2009)
Issue (Month): 1S (April)
Pages: 8-26
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Handle: RePEc:rom:terumm:v:4:y:2009:i:1s:p:8-26

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Related research
Keywords: Return; volatility; dynamic conditional correlation.;

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Find related papers by JEL classification:
R21 - Urban, Rural, and Regional Economics - - Household Analysis - - - Housing Demand
R31 - Urban, Rural, and Regional Economics - - Production Analysis and Firm Location - - - Housing Supply and Markets
O18 - Economic Development, Technological Change, and Growth - - Economic Development - - - Regional, Urban, and Rural Analyses

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  3. Neal Maroney & Atsuyuki Naka, 2006. "Diversification Benefits of Japanese Real Estate Over the Last Four Decades," The Journal of Real Estate Finance and Economics, Springer, vol. 33(3), pages 259-274, November. [Downloadable!] (restricted)
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    Other versions:
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  11. Tse, Y. K., 2000. "A test for constant correlations in a multivariate GARCH model," Journal of Econometrics, Elsevier, vol. 98(1), pages 107-127, September. [Downloadable!] (restricted)
  12. 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)
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