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Risk and Predictability of Singapore’s Direct Residential Real Estate Market

Author

Listed:
  • Qin Xiao

    (Division of Economics,School of Humanities and Social Sciences, Nanyang Technological University, Singapore)

  • Weihong Huang

    (Division of Economics,School of Humanities and Social Sciences, Nanyang Technological University, Singapore)

Abstract

This study explores the topic of the predictability of direct real estate prices in the short-run and the risks facing investors via a case study. Two models are estimated using heteroscedastic and autocorrelation robust ML method. Possible structural shifts of the models are examined. The one assuming that the model captures all the economic influences produces slightly better in-sample fitting. The other model assumes that there could be some important information which is not publicly available. Such information can nevertheless be extracted using Kalman filter. The latter has smaller forecast error in general. We found that a rational speculative bubble is an important predictor of short-run price movement, especially when the market is volatile and noisy. Rental is the only fundamental variable which has any important role to play in the short-run price generating process. Further more, the influence of rental is significant only when the market is inactive. Based on the study, we argue that the risk facing market participants comes not from the rational speculative bubble given its predictability, but primarily from unpredictable local policy shifts.

Suggested Citation

  • Qin Xiao & Weihong Huang, 2007. "Risk and Predictability of Singapore’s Direct Residential Real Estate Market," Economic Growth Centre Working Paper Series 0702, Nanyang Technological University, School of Social Sciences, Economic Growth Centre.
  • Handle: RePEc:nan:wpaper:0702
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    References listed on IDEAS

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    More about this item

    Keywords

    Risk; information; rational bubble; Kalman filter;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • 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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