Trading Volume-Induced Spatial Autocorrelation in Real Estate Prices

20 Pages Posted: 11 May 2012 Last revised: 11 Jun 2012

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

Date Written: January 9, 2012

Abstract

Spatial dependence is often seen as a problem in econometrics rather than in 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 neighboring property transactions. Weaker spatial dependence is expected when price information in the immediate vicinity of a subject property 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 found that the trading volume of a building depresses horizontal spatial dependence, but raises vertical spatial dependence. This not only confirmed the role of trading volume in the real estate price discovery process, but also questioned the validity of constant spatial autocorrelation assumption adopted in many studies.

Keywords: Spatial dependence, trading volume, price discovery, real estate

JEL Classification: R20, D83, C23

Suggested Citation

Wong, Siu Kei and Yiu, Edward Chung Yim and Chau, Kwong Wing, Trading Volume-Induced Spatial Autocorrelation in Real Estate Prices (January 9, 2012). Available at SSRN: https://ssrn.com/abstract=2055236 or http://dx.doi.org/10.2139/ssrn.2055236

Siu Kei Wong

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 (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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