Price Discovery Function of Forward Contracts in the Real Estate Market: An Empirical Test

Journal of Financial Management of Property and Construction, Vol.8, No.3, pp.129-137

15 Pages Posted: 2 Sep 2009

See all articles by K.W. Chau

K.W. Chau

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

Siu Kei Wong

University of Hong Kong

Chung Yim Edward Yiu

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

Date Written: August 31, 2003

Abstract

Studies on the pricing of financial forward contracts are abundant, and massively outnumber those on the pricing of real forward contracts due to the scarcity of data in the real forward contracts market. In addition, most real forward contracts markets are thinly transacted and heterogeneous in nature. The property pre-sales market is a major real forward contract market in Hong Kong that has been actively transacted. The large volume of data in the Hong Kong property pre-sales market allows us to construct and test a forward contracts pricing model for properties. Despite the relative higher information cost in the real forward contracts compared to financial future contracts, we found that uncompleted properties in the pre-sales market are efficiently priced and accurately reflect the spot price level and the discount due to rental income forgone during the preoccupation period. We also found that the expected spot price derived from our forward pricing model tracks the ex post spot price closely.

Keywords: forward contracts, pre-sales, pricing model, price discovery, market efficiency

Suggested Citation

Chau, Kwong Wing and Wong, Siu Kei and Yiu, Chung Yim Edward, Price Discovery Function of Forward Contracts in the Real Estate Market: An Empirical Test (August 31, 2003). Journal of Financial Management of Property and Construction, Vol.8, No.3, pp.129-137. Available at SSRN: https://ssrn.com/abstract=1465189

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)

Siu Kei Wong (Contact Author)

University of Hong Kong ( email )

Pokfulam Road
Hong Kong, HK
China

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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