Lead-Lag Relationship between the Real Estate Spot and Forward Contract Markets
Posted: 15 Sep 2008
Date Written: September 11, 2008
This study analyzes the lead-lag relationship between the spot and forward returns on direct real estate investments. Based on the forward price index (for which the term to maturity is zero) and the expost spot price index of residential property in Hong Kong, changes in information flow between the spot and forward markets are tested to see how they affect the lead-lag relationship. The findings suggest that (1) during periods of low-volume ratios (i.e., the forward market is relatively less active than the spot market), the spot return Granger causes the returns of forward contracts; and (2) during periods of higher-volume ratios, there are feedback relationships between the two markets.
Keywords: forward contracts, repeat sales price index, lead-lag relationship, volume ratio, liquidity
JEL Classification: G13
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