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The Dynamics and Volatility of Commercial and Residential Property Prices: Theory and Evidence

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Listed author(s):
  • Kamhon Kan
  • Sunny Kai-sun Kwong
  • Charles Ka-yui Leung

Abstract

This paper investigates the dynamics of property prices and their interaction with output growth in a general equilibrium model. Closed form solutions and testable hypotheses are derived from a mildly restricted version of the model. The testable hypotheses are broadly supported empirically. In particular, (1) the volatility of commercial property prices is higher than that of residential property prices, (2) each of the lagged, contemporary, and forward commercial property prices is positively correlated with residential property prices, (3) the contemporaneous covariance between the two property prices is larger than the lagged covariance, and (4) output growth is positively correlated with both property prices. These results are consistent with simulations results that are based on a more general specification of the model.

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Paper provided by Chinese University of Hong Kong, Department of Economics in its series Departmental Working Papers with number _147.

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Date of creation: Oct 2002
Handle: RePEc:chk:cuhked:_147
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Find related papers by JEL classification:
  • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
  • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
  • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis

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  28. repec:hoo:wpaper:e-95-4 is not listed on IDEAS
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