Transaction Volume and Price Dispersion in the Presale and Spot Real Estate Markets

23 Pages Posted: 9 Nov 2008 Last revised: 4 Jun 2012

See all articles by Edward Chung Yim Yiu

Edward Chung Yim Yiu

University of Auckland Business School

Siu Kei Wong

University of Hong Kong

K.W. Chau

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

Date Written: March 2, 2008

Abstract

Noise trading has been intensively studied in finance, but rarely in real estate. Theories of price dispersion have also been well established in retailing research, but less so in real estate. This paper is the first attempt to study the effect of noise trading on price dispersion in the real estate spot and presale (forward) markets. Quality-controlled price dispersion data series are estimated using a sample of transaction data in the housing presale and spot markets in Hong Kong. Our results show that transaction volume has a negative and significant effect on price dispersion in the spot market, but a positive and significant in the presale market. These support our conjecture that there are more noise traders in the presale market due to lower transaction costs. The volume effects also provide support for the use of a volume weighted least squares model when constructing a repeat sales index.

Keywords: noise trader, price dispersion, presale, trading volume, repeat-sales model

JEL Classification: D89, G10, G14, R20

Suggested Citation

Yiu, Edward Chung Yim and Wong, Siu Kei and Chau, Kwong Wing, Transaction Volume and Price Dispersion in the Presale and Spot Real Estate Markets (March 2, 2008). Yiu, C.Y., Wong, S. K. and Chau, K. W. (2009) "Transaction volume and price dispersion in the presale and spot real estate markets", Journal of Real Estate Finance and Economics, 38 (3), 241-253. 2009, Available at SSRN: https://ssrn.com/abstract=1296740

Edward Chung Yim Yiu

University of Auckland Business School ( email )

Sir Owen G Glenn Building
12 Grafton Road
Auckland, 1024
New Zealand
+64 923 3913 (Phone)

HOME PAGE: http://https://unidirectory.auckland.ac.nz/people/profile/edward-yiu

Siu Kei Wong

University of Hong Kong ( email )

Pokfulam Road
Hong Kong, HK
China

Kwong Wing Chau (Contact Author)

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)

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