IDEAS home Printed from https://ideas.repec.org/a/ire/issued/v10n022007p66-93.html
   My bibliography  Save this article

On the Stability of the Implicit Prices of Housing Attributes: A Dynamic Theory and Some Evidence

Author

Listed:
  • Charles Ka Yui Leung

    () (Department of Economics and Finance, City University of Hong Kong, Kowloon Tong, Hong Kong)

  • Kelvin Siu Kei Wong

    () (Department of Real Estate and Construction, The University of Hong Kong, Pokfulam, Hong Kong)

  • Patrick Wai Yin Cheung

    () (Department of Economics and Finance, City University of Hong Kong, Kowloon Tong, Hong Kong)

Abstract

Given the dramatic fluctuations in aggregate housing prices, this paper attempts to examine whether the implicit prices of different housing attributes are “stable.” Theoretically, this paper provides perhaps the first dynamic, general equilibrium model in which housing attributes’ implicit prices fluctuate. Empirically, this paper models the time paths of different implicit prices as auto-regressive processes by employing a hedonic pricing model on a large set of housing transaction data over a relatively long period of time. An endogenous structural break test is then performed. Except for a few attributes, structural breaks are not detected. Directions for future research are discussed.

Suggested Citation

  • Charles Ka Yui Leung & Kelvin Siu Kei Wong & Patrick Wai Yin Cheung, 2007. "On the Stability of the Implicit Prices of Housing Attributes: A Dynamic Theory and Some Evidence," International Real Estate Review, Asian Real Estate Society, vol. 10(2), pages 66-93.
  • Handle: RePEc:ire:issued:v:10:n:02:2007:p:66-93
    as

    Download full text from publisher

    File URL: http://www.umac.mo/fba/irer/papers/past/vol10n2_pdf/04Leung,%20Wong%20and%20Cheung%20_66-93.pdf
    File Function: Full text
    Download Restriction: no

    References listed on IDEAS

    as
    1. Christiano, Lawrence J. & Eichenbaum, Martin, 1987. "Temporal aggregation and structural inference in macroeconomics," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 26(1), pages 63-130, January.
    2. Wilhelmsson, Mats, 2002. "Household Expenditure Patterns for Housing Attributes: A Linear Expenditure System with Hedonic Prices," Journal of Housing Economics, Elsevier, vol. 11(1), pages 75-93, March.
    3. Case Karl E. & Quigley John M. & Shiller Robert J., 2005. "Comparing Wealth Effects: The Stock Market versus the Housing Market," The B.E. Journal of Macroeconomics, De Gruyter, vol. 5(1), pages 1-34, May.
    4. Piyabha Kongsamut & Sergio Rebelo & Danyang Xie, 2001. "Beyond Balanced Growth," Review of Economic Studies, Oxford University Press, vol. 68(4), pages 869-882.
    5. Melville L. McMillan & Bradford G. Reid & David W. Gillen, 1980. "An Extension of the Hedonic Approach for Estimating the Value of Quiet," Land Economics, University of Wisconsin Press, vol. 56(3), pages 315-328.
    6. Kamhon Kan & Sunny Kai-Sun Kwong & Charles Ka-Yui Leung, 2004. "The Dynamics and Volatility of Commercial and Residential Property Prices: Theory and Evidence," Journal of Regional Science, Wiley Blackwell, vol. 44(1), pages 95-123.
    7. Do, A Quang & Wilbur, Robert W & Short, James L, 1994. "An Empirical Examination of the Externalities of Neighborhood Churches on Housing Values," The Journal of Real Estate Finance and Economics, Springer, vol. 9(2), pages 127-136, September.
    8. Christiano, Lawrence J & Eichenbaum, Martin & Marshall, David, 1991. "The Permanent Income Hypothesis Revisited," Econometrica, Econometric Society, vol. 59(2), pages 397-423, March.
    9. Llubos Pástor, 2001. "The Equity Premium and Structural Breaks," Journal of Finance, American Finance Association, vol. 56(4), pages 1207-1239, August.
    10. Jeffrey A. Miron, 1996. "The Economics of Seasonal Cycles," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262133237, January.
    11. Campos, Julia & Ericsson, Neil R. & Hendry, David F., 1996. "Cointegration tests in the presence of structural breaks," Journal of Econometrics, Elsevier, vol. 70(1), pages 187-220, January.
    12. David M. Brasington, 1999. "Which Measures of School Quality Does the Housing Market Value?," Journal of Real Estate Research, American Real Estate Society, vol. 18(3), pages 395-414.
    13. Nancy E. Wallace, 1996. "Hedonic-based price indexes for housing: theory, estimation, and index construction," Economic Review, Federal Reserve Bank of San Francisco, pages 34-48.
    14. Straszheim, Mahlon R, 1974. "Hedonic Estimation of Housing Market Prices: A Further Comment," The Review of Economics and Statistics, MIT Press, vol. 56(3), pages 404-406, August.
    15. Stephen Malpezzi, "undated". "Hedonic Pricing Models: A Selective and Applied Review," Wisconsin-Madison CULER working papers 02-05, University of Wisconsin Center for Urban Land Economic Research.
    16. Charles K. Y. Leung & Garion C. K. Lau & Youngman C. F. Leong, 2002. "Testing Alternative Theories of the Property Price-Trading Volume Correlation," Journal of Real Estate Research, American Real Estate Society, vol. 23(3), pages 253-264.
    17. Charles Leung & Youngman Leong & Siu Wong, 2006. "Housing Price Dispersion: An Empirical Investigation," The Journal of Real Estate Finance and Economics, Springer, vol. 32(3), pages 357-385, May.
    18. Cheshire, Paul & Sheppard, Stephen, 1998. "Estimating the Demand for Housing, Land, and Neighbourhood Characteristics," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 60(3), pages 357-382, August.
    19. Anderson, G J, 1991. "Expenditure Allocation across Nondurables, Services, Durables and Savings: An Empirical Study of Separability in the Long Run," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 6(2), pages 153-168, April-Jun.
    20. Woo, Chi-Keung & Kwok, Raymond H. F., 1994. "Vanity, superstition and auction price," Economics Letters, Elsevier, vol. 44(4), pages 389-395, April.
    21. Charles Ka Yui Leung & Youngman Chun Fai Leong & Ida Yin Sze Chan, 2002. "TOM: Why Isn’t Price Enough?," International Real Estate Review, Asian Real Estate Society, vol. 5(1), pages 91-115.
    22. Goodman, Allen C. & Kawai, Masahiro, 1982. "Permanent income, hedonic prices, and demand for housing: New evidence," Journal of Urban Economics, Elsevier, vol. 12(2), pages 214-237, September.
    23. Charles Leung, 2007. "Equilibrium Correlations of Asset Price and Return," The Journal of Real Estate Finance and Economics, Springer, vol. 34(2), pages 233-256, February.
    24. Hansen, Bruce E, 1997. "Approximate Asymptotic P Values for Structural-Change Tests," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(1), pages 60-67, January.
    25. Raj, Baldev, 1992. "International Evidence on Persistence in Output in the Presence of an Episodic Change," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(3), pages 281-293, July-Sept.
    26. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-1445, November.
    27. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
    28. Mok, Henry M K & Chan, Patrick P K & Cho, Yiu-sun, 1995. "A Hedonic Price Model for Private Properties in Hong Kong," The Journal of Real Estate Finance and Economics, Springer, vol. 10(1), pages 37-48, January.
    29. Leung, Charles Ka Yui, 2001. "Relating International Trade to the Housing Market," Review of Development Economics, Wiley Blackwell, vol. 5(2), pages 328-335, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Leung, Charles Ka Yui & Tang, Edward Chi Ho, 2013. "Speculating China economic growth through Hong Kong? Evidence from the stock market IPO and real estate markets," MPRA Paper 46346, University Library of Munich, Germany.
    2. Charles Ka Yui Leung & Patrick Wai Yin Cheung & Edward Chi Ho Tang, 2013. "Financial Crisis and the Co-movements of Housing Sub-markets: Do relationships change after a crisis?," International Real Estate Review, Asian Real Estate Society, vol. 16(1), pages 68-118.
    3. Charles Ka Yui LEUNG & Wai Yip MA & Jun ZHANG, 2014. "The Market Valuation of Interior Design and Developer Strategies: A Simple Theory and Some Evidence," International Real Estate Review, Asian Real Estate Society, vol. 17(1), pages 63-107.

    More about this item

    Keywords

    hedonic pricing; structural break; evolution of valuation; housing attributes;

    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ire:issued:v:10:n:02:2007:p:66-93. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (IRER Secretary Office/Webmaster). General contact details of provider: http://www.asres.org/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.