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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)

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    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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    Bibliographic Info

    Article provided by Research Centre in Public Administration and Public Services, Bucharest, Romania in its journal 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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    References

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    1. Chiuling Lu & Raymond So, 2005. "Return Relationships between Listed Banks and Real Estate Firms: Evidence from Seven Asian Economies," The Journal of Real Estate Finance and Economics, Springer, vol. 31(2), pages 189-206, September.
    2. Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, vol. 11(01), pages 122-150, February.
    3. S. Wong & C. Yiu & M. Tse & K. Chau, 2006. "Do the Forward Sales of Real Estate Stabilize Spot Prices?," The Journal of Real Estate Finance and Economics, Springer, vol. 32(3), pages 289-304, May.
    4. Qin Xiao & Randolph Gee Kwang Tan, 2006. "Signal Extraction with Kalman Filter: A Study of the Hong Kong Property Price Bubbles," Economic Growth centre Working Paper Series 0601, Nanyang Technolgical University, School of Humanities and Social Sciences, Economic Growth centre.
    5. Yuming Fu & Lilian K. Ng, 2001. "Market Efficiency and Return Statistics: Evidence from Real Estate and Stock Markets Using a Present-Value Approach," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 29(2), pages 227-250.
    6. John Cotter & Simon Stevenson, 2011. "Multivariate Modeling of Daily REIT Volatility," Quantitative Finance Papers 1103.5660, arXiv.org.
    7. Robert Engle, 2004. "Risk and Volatility: Econometric Models and Financial Practice," American Economic Review, American Economic Association, vol. 94(3), pages 405-420, June.
    8. 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.
    9. 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.
    10. David Michayluk & Patrick J. Wilson & Ralf Zurbruegg, 2006. "Asymmetric Volatility, Correlation and Returns Dynamics Between the U.S. and U.K. Securitized Real Estate Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 34(1), pages 109-131, 03.
    11. 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.
    12. K. Chau & S. Wong & C. Yiu, 2007. "Housing Quality in the Forward Contracts Market," The Journal of Real Estate Finance and Economics, Springer, vol. 34(3), pages 313-325, April.
    13. Glascock, John L & Lu, Chiuling & So, Raymond W, 2000. "Further Evidence on the Integration of REIT, Bond, and Stock Returns," The Journal of Real Estate Finance and Economics, Springer, vol. 20(2), pages 177-94, March.
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