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

Author

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  • Qin Xiao

    (Department of Economics, Nanyang Technological University, S3-Olc-120 Nanyang Avenue, Singapore 639798, cqxiao@ntu.edu.sg)

  • Gee Kwang Randolph Tan

    (Department of Economics, Nanyang Technological University, S3-Olc-120 Nanyang Avenue, Singapore 639798, arandolph@ ntu.edu.sg)

Abstract

Since the early 1980s, the debate surrounding speculative bubbles has never subsided. A key obstacle to resolving this issue is the identification problem. A bubble is usually inferred from some assumed fundamental determinants of a price. These assumptions could be oversimplified. Furthermore, there might be data measurement errors. This paper attempts to capture such errors with a latent state variable. This variable is extracted using the Kalman filter. Based on the empirical comparisons, it is found 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.

Suggested Citation

  • Qin Xiao & Gee Kwang Randolph Tan, 2007. "Signal Extraction with Kalman Filter: A Study of the Hong Kong Property Price Bubbles," Urban Studies, Urban Studies Journal Limited, vol. 44(4), pages 865-888, April.
    • Handle: RePEc:sae:urbstu:v:44:y:2007:i:4:p:865-888
    DOI: 10.1080/00420980601185650
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    Cited by:

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    2. An-Ming Wang, 2016. "Agglomeration and simplified housing boom," Urban Studies, Urban Studies Journal Limited, vol. 53(5), pages 936-956, April.
    3. Sara Ferreira Filipe, 2018. "Housing prices and mortgage credit in Luxembourg," BCL working papers 117, Central Bank of Luxembourg.
    4. Tsaubin Chen & Chiang Ku Fan, 2019. "Non-performing Loans and Housing Prices in Taiwan," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 9(6), pages 1-4.
    5. Sherry Zhefang ZHOU & Helen Xiaohui BAO, 2009. "Modelling Price Dynamics In The Hong Kong Property Market," Theoretical and Empirical Researches in Urban Management, Research Centre in Public Administration and Public Services, Bucharest, Romania, vol. 4(1S), pages 8-26, April.
    6. Juan Huang & Geoffrey Qiping Shen, 2017. "Residential housing bubbles in Hong Kong: identification and explanation based on GSADF test and dynamic probit model," Journal of Property Research, Taylor & Francis Journals, vol. 34(2), pages 108-128, April.
    7. Ogonna Nneji & Chris Brooks & Charles Ward, 2013. "Commercial Real Estate and Equity Market Bubbles: Are They Contagious to REITs?," Urban Studies, Urban Studies Journal Limited, vol. 50(12), pages 2496-2516, September.
    8. Hsiao-Jung Teng & Chin-Oh Chang & Ming-Chi Chen, 2017. "Housing bubble contagion from city centre to suburbs," Urban Studies, Urban Studies Journal Limited, vol. 54(6), pages 1463-1481, May.
    9. Qin Xiao, 2010. "Crashes in Real Estate Prices: Causes and Predictability," Urban Studies, Urban Studies Journal Limited, vol. 47(8), pages 1725-1744, July.
    10. Rafiq Ahmed & Syed Tehseen Jawaid & Samina Khalil, 2021. "Bubble Detection in Housing Market: Evidence From a Developing Country," SAGE Open, , vol. 11(2), pages 21582440211, April.

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    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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