Volatility Transmission in the Real Estate Spot and Forward Markets

19 Pages Posted: 27 Aug 2007 Last revised: 19 May 2012

Siu Kei Wong

University of Hong Kong

K.W. Chau

The University of Hong Kong - Ronald Coase Centre for Property Rights Research - Economics

Chung Yim Edward Yiu

Chinese University of Hong Kong - Department of Geography and Resource Management

Date Written: October 15, 2006

Abstract

How shocks in one market influence the returns and volatility of other markets has been an important question for portfolio managers. In the finance literature, many studies found evidence of volatility spillovers across international markets, as well as between spot and futures markets. Although real estate is often regarded as a good vehicle for diversification, the dynamics of its volatility transmission have been largely ignored. This paper provides the first study to examine volatility spillovers between the spot and forward (pre-sale) index returns of the Hong Kong real estate market through a bivariate GARCH model. Transaction-based indices were used so that our volatility modelling was free from any smoothing problem. Our results showed that real estate returns exhibited volatility clustering, and the volatility of the forward market was more sensitive to shocks than the spot market. Moreover, volatility was mainly transmitted from the forward market to the spot market, but not vice versa.

Keywords: volatility spillover, pre-sale, bivariate GARCH

JEL Classification: G14, R29, C22

Suggested Citation

Wong, Siu Kei and Chau, K.W. and Yiu, Chung Yim Edward, Volatility Transmission in the Real Estate Spot and Forward Markets (October 15, 2006). Journal of Real Estate Finance and Economics, Vol. 35, No. 3, 2007. Available at SSRN: https://ssrn.com/abstract=1009620

Siu Kei Wong (Contact Author)

University of Hong Kong ( email )

Pokfulam Road
Hong Kong, HK
China

Kwong Wing Chau

The University of Hong Kong - Ronald Coase Centre for Property Rights Research - Economics ( email )

Ronald Coase Centre for Property Rights Research
Pokfulam Road
Hong Kong
Hong Kong
(852)28592128 (Phone)
(852)25599457 (Fax)

Chung Yim Edward Yiu

Chinese University of Hong Kong - Department of Geography and Resource Management ( email )

Shatin
the New Territories
Hong Kong
Hong Kong

HOME PAGE: http://www.grm.cuhk.edu.hk/eng/people/ppl/fac_YiuEdward.html

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