Can Liquidity Explain Spatial Dependence in Real Estate Prices?

Posted: 1 Dec 2010

See all articles by Siu Kei Wong

Siu Kei Wong

University of Hong Kong

Edward Chung Yim Yiu

University of Auckland Business School

K.W. Chau

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

Abstract

Spatial dependence is often seen as a problem in econometrics rather than economics. This study seeks to find an economic explanation for spatially correlated real estate prices. We posit spatial dependence as a process to discover price information from nearby property transactions. Weaker spatial dependence is expected when price information in the immediate vicinity is abundant. In the context of apartment buildings, in addition to the more commonly known horizontal dependence, there is also spatial dependence in the vertical dimension within the same building. Based on more than 18,000 transactions of highly homogeneous apartment units in Hong Kong, we find that liquidity (trading volume) of a building depresses horizontal spatial dependence but raises vertical spatial dependence. This does not only confirm the role of liquidity in the real estate price discovery process, but also questions the validity of constant spatial auto-correlation assumption adopted in many studies.

JEL Classification: R2

Suggested Citation

Wong, Siu Kei and Yiu, Edward Chung Yim and Chau, Kwong Wing, Can Liquidity Explain Spatial Dependence in Real Estate Prices?. 46th Annual AREUEA Conference Paper, Available at SSRN: https://ssrn.com/abstract=1717045

Siu Kei Wong (Contact Author)

University of Hong Kong ( email )

Pokfulam Road
Hong Kong, HK
China

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

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)

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