Detecting Bubbles in the Hong Kong Residential Property Market: An Explosive-Pattern Approach
Matthew S. Yiu
Hong Kong Monetary Authority - Hong Kong Institute for Monetary Research (HKIMR)
Hong Kong Monetary Authority
January 20, 2012
Hong Kong Institute for Monetary Research Working Paper No. 1/2012
This study applies the newly developed bubble detection method (Phillips, Wu and Yu, 2011) to identifying asset bubbles in the Hong Kong residential property market. Our empirical results show that the method is capable of detecting the 1997 bubble and is able to reveal the corresponding origination and collapse, showing its superiority over the standard unit root and co-integration method. During the period between mid-2009 and early 2011, the method indicates strong upward price pressure in the mass segment and bubble-type behaviour in two short periods of time in the luxury segment. The results, however, show potential shortcomings of the method including: the high correlation between the price-rent differentials and t-statistics near the critical values, and the symmetric property towards explosive growth and precipitant fall of the time series.
Number of Pages in PDF File: 18
Keywords: Asset Bubble, Residential Property Prices, Right-Tailed Unit Root Test, Explosive Behaviour, Price-To-Rent Ratio
JEL Classification: C22, G12, R31working papers series
Date posted: January 21, 2012
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