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The residential market of Hong Kong: rational or irrational?

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  • Qin Xiao
  • Yunhua Liu

Abstract

The current study attempts to investigate the proposition that Hong Kong residential market is only driven by a rational speculative bubble, in addition to fundamentals. The fundamentals are chosen according to the present value model, but will account for latent private information. Potential roles of other public information are also explored. The study finds that the influence of the rational bubble on the price growth is highly significant. However, in contrast to Seoul and Singapore housing market (Xiao, 2006; Xiao and Huang, 2007), neither the fundamentals, nor the rational bubble can explain much of the price growth in the market of concern. This finding leaves large room for questioning whether or not this market is more prone to irrationality than its counterparts in Seoul and Singapore.

Suggested Citation

  • Qin Xiao & Yunhua Liu, 2010. "The residential market of Hong Kong: rational or irrational?," Applied Economics, Taylor & Francis Journals, vol. 42(7), pages 923-933.
    • Handle: RePEc:taf:applec:v:42:y:2010:i:7:p:923-933
    DOI: 10.1080/00036840701720960
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    References listed on IDEAS

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    1. Qin Xiao & Weihong Huang, 2010. "Risk and predictability of Singapore's private residential market," Quantitative Finance, Taylor & Francis Journals, vol. 10(5), pages 529-543.
    2. Michael Mussa, 1984. "Rational Expectations Models with a Continuum of Convergent Solutions," NBER Technical Working Papers 0041, National Bureau of Economic Research, Inc.
    3. Ho Yeol Lim, 2003. "Asset price movements and monetary policy in South Korea," BIS Papers chapters, in: Bank for International Settlements (ed.), Monetary policy in a changing environment, volume 19, pages 313-337, Bank for International Settlements.
    4. Robert P. Flood & Robert J. Hodrick & Paul Kaplan, 1986. "An Evaluation of Recent Evidence on Stock Market Bubbles," NBER Working Papers 1971, National Bureau of Economic Research, Inc.
    5. Takatoshi Ito & Tokuo Iwaisako, 1996. "Explaining Asset Bubbles in Japan," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 14(1), pages 143-193, July.
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    Cited by:

    1. Zhuo Qiao & Wing-Keung Wong, 2015. "Which is a better investment choice in the Hong Kong residential property market: a big or small property?," Applied Economics, Taylor & Francis Journals, vol. 47(16), pages 1670-1685, April.
    2. Chun-Kei Tsang & Wing-Keung Wong & Ira Horowitz, 2016. "Arbitrage opportunities, efficiency, and the role of risk preferences in the Hong Kong property market," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 33(4), pages 735-754, October.
    3. Tsang, Chun-Kei & Wong, Wing-Keung & Horowitz, Ira, 2016. "A stochastic-dominance approach to determining the optimal home-size purchase: The case of Hong Kong," MPRA Paper 69175, University Library of Munich, Germany.
    4. I-Chun Tsai, 2022. "The connectedness between Hong Kong and China real estate markets: spillover effect and information transmission," Empirical Economics, Springer, vol. 63(1), pages 287-311, July.
    5. Yiu, Matthew S. & Yu, Jun & Jin, Lu, 2013. "Detecting bubbles in Hong Kong residential property market," Journal of Asian Economics, Elsevier, vol. 28(C), pages 115-124.
    6. Ting Lan, 2019. "Intrinsic bubbles and Granger causality in the Hong Kong residential property market," Frontiers of Business Research in China, Springer, vol. 13(1), pages 1-15, December.

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