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Signal Extraction with Kalman Filter: A Study of the Hong Kong Property Price Bubbles

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Author Info
Qin Xiao (Division of Economics,School of Humanities and Social Sciences, Nanyang Technological University, Singapore)
Randolph Gee Kwang Tan (Division of Economics,School of Humanities and Social Sciences, Nanyang Technological University, Singapore)

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Abstract

Since Flood and Garber (1980), the debate surrounding speculative bubbles has never subsided. A key obstacle to resolve this issue is the identification problem. A bubble is usually inferred from some assumed fundamental determinants of a price. These assumptions could be over-simplified. Furthermore, there might be data measurement errors. In this paper, we attempt to capture such errors with a latent state variable. This variable is extracted with Kalman filter. Based on our empirical comparisons, we find that it is possible to attribute the observed large price swings in the property market of Hong Kong during the 1980s and 1990s to a periodically collapsing rational speculative bubble.

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Publisher Info
Paper provided by Nanyang Technolgical University, School of Humanities and Social Sciences, Economic Growth centre in its series Economic Growth centre Working Paper Series with number 0601.

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Length: 51 pages
Date of creation: Jan 2006
Date of revision:
Handle: RePEc:nan:wpaper:0601

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Related research
Keywords: rational speculative bubble; misspecification or measurement error; Kalman filter;

Find related papers by JEL classification:
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Hypothesis Testing
C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Estimation
C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing

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    Other versions:
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    Other versions:
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Sherry Zhefang ZHOU & Helen Xiaohui BAO, 2009. "Modelling Price Dynamics In The Hong Kong Property Market," Cercetari practice si teoretice in managementul urban/Theoretical and Empirical Researches in Urban Management, Research Centre in Public Administration and Public Services, Bucharest, Romania, vol. 4(1S), pages 8-26, April. [Downloadable!]
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