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Modelling house price volatility states in the UK by switching ARCH models


  • I-Chun Tsai
  • Ming-Chi Chen
  • Tai Ma


This article analyses investment risk in the housing market by examining volatility properties of house prices for the UK. We use both ARCH and GARCH models to estimate price conditional heteroscedasticity and find evidence of a time-varying property in the volatilities of the house price series. We then use the SWARCH model and find there are three volatility states in the price series. Our estimations suggest the UK housing markets are relatively stable and different states do not switch very often. The magnitude of high price volatility is as high as 20.99 times of the low volatility for the older housing market and 14 times of the low volatility for the new housing market. In addition, the older housing market is less efficient than the new housing market, since the impacts of events on the volatility state of the older house prices is more lasting than in new housing market.

Suggested Citation

  • I-Chun Tsai & Ming-Chi Chen & Tai Ma, 2010. "Modelling house price volatility states in the UK by switching ARCH models," Applied Economics, Taylor & Francis Journals, vol. 42(9), pages 1145-1153.
  • Handle: RePEc:taf:applec:v:42:y:2010:i:9:p:1145-1153
    DOI: 10.1080/00036840701721133

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    Cited by:

    1. José-María Montero-Lorenzo & Beatriz Larraz-Iribas, 2012. "Space-time approach to commercial property prices valuation," Applied Economics, Taylor & Francis Journals, vol. 44(28), pages 3705-3715, October.
    2. Chatziantoniou, Ioannis & Filis, George & Floros, Christos, 2017. "Asset prices regime-switching and the role of inflation targeting monetary policy," Global Finance Journal, Elsevier, vol. 32(C), pages 97-112.
    3. Richard Whittle & Thomas Davies & Matthew Gobey & John Simister, 2014. "Behavioural Economics and House Prices: A Literature Review," Business and Management Horizons, Macrothink Institute, vol. 2(2), pages 15-28, December.
    4. repec:erc:cypepr:v:11:y:2017:i:1:p:69-82 is not listed on IDEAS

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