The authors are grateful to Terence Chong, Win Lin Chou, Robert Edelstein, seminar participants at the Econometric Society World Congress (Seattle), Asian Real Estate Society Meeting, the University of Hong Kong and City University of Hong Kong, three anonymous referees, and Marlon Boarnet for useful comments and suggestions, and to the Chinese University Direct Grant and RGC Earmark Grant for financial support. Kamhon Kan gratefully acknowledges financial support from Taiwan's National Science Council through grant NSC89-2415-H-001-051 and financial support from Academia Sinica through research grant IEAS-03-09-f. The usual disclaimer applies.
The Dynamics and Volatility of Commercial and Residential Property Prices: Theory and Evidence*
Article first published online: 16 FEB 2004
Journal of Regional Science
Volume 44, Issue 1, pages 95–123, February 2004
How to Cite
Kan, K., Kwong, S. K.-S. and Leung, C. K.-Y. (2004), The Dynamics and Volatility of Commercial and Residential Property Prices: Theory and Evidence. Journal of Regional Science, 44: 95–123. doi: 10.1111/j.1085-9489.2004.00329.x
- Issue published online: 16 FEB 2004
- Article first published online: 16 FEB 2004
- Received: June 2001; Revised: May 2002 and February 2003; Accepted: April 2003.
Abstract. This article 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.