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Cointegration of matched home purchases and rental price indexes — Evidence from Singapore

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  • Baltagi, Badi H.
  • Li, Jing

Abstract

This paper exploits the homogeneity feature of the Singapore private residential condominium market and constructs matched home purchase price and rental price series using the repeated sales method. These matched series allow us to conduct time series analysis to examine the long-term present value relationship in the housing market. Three key findings are obtained. First, we fail to establish a cointegrating relationship between the home purchase price and rental price based on nationally estimated indexes. Second, area-specific indexes demonstrate strong cross-correlations, invalidating the use of first generation panel unit root tests that ignore these cross-correlations. Third, Pesaran's CIPS test indicates that the unit root hypothesis is rejected for the first difference of both indexes. We also do not reject the hypothesis that area-specific home purchases and rental price indexes are cointegrated with a cointegrating vector (1, −1).

Suggested Citation

  • Baltagi, Badi H. & Li, Jing, 2015. "Cointegration of matched home purchases and rental price indexes — Evidence from Singapore," Regional Science and Urban Economics, Elsevier, vol. 55(C), pages 80-88.
  • Handle: RePEc:eee:regeco:v:55:y:2015:i:c:p:80-88
    DOI: 10.1016/j.regsciurbeco.2015.10.001
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    1. repec:eee:regeco:v:68:y:2018:i:c:p:160-171 is not listed on IDEAS
    2. repec:kap:jrefec:v:57:y:2018:i:4:d:10.1007_s11146-017-9625-0 is not listed on IDEAS
    3. Jiang, Liang & Phillips, Peter C.B. & Yu, Jun, 2015. "New methodology for constructing real estate price indices applied to the Singapore residential market," Journal of Banking & Finance, Elsevier, vol. 61(S2), pages 121-131.

    More about this item

    Keywords

    Cointegration; Housing market; Purchase and rental price; Market efficiency;

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General

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