Price Signals and Bid-Ask Spreads in an Illiquid Market: The Case of Residential Property in Ireland, 2006-2011

31 Pages Posted: 23 Jan 2013 Last revised: 21 Feb 2013

See all articles by Ronan C. Lyons

Ronan C. Lyons

Trinity College Dublin; Spatial Economics Research Centre, LSE

Date Written: February 2013

Abstract

How legitimate is it to use asking price information in the absence of transactions prices? And how does the gap between the two vary over the market cycle? This paper examines these two issues by comparing two large datasets from Ireland's property market over the volatile period 2001-2012. It finds the two series extremely closely correlated, both across space and across time, suggesting that in illiquid markets, or in the absence of transaction prices, asking prices offer a very good proxy. The gap that exists between the two is decomposed into four parts, including a bid-ask spread and a 'selection spread', whereby those properties that ultimately find a seller are listed at systematically lower prices. A selection spread of 4% on average emerged in the Irish housing market after 2009. The estimate of the bid-ask spread ranges from 0-4% in 2007 to -8% by 2010.

Keywords: housing markets, housing prices, hedonic regression

JEL Classification: R3, G12, E31

Suggested Citation

Lyons, Ronan C., Price Signals and Bid-Ask Spreads in an Illiquid Market: The Case of Residential Property in Ireland, 2006-2011 (February 2013). Available at SSRN: https://ssrn.com/abstract=2205742 or http://dx.doi.org/10.2139/ssrn.2205742

Ronan C. Lyons (Contact Author)

Trinity College Dublin ( email )

Dublin 2
Ireland

Spatial Economics Research Centre, LSE ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

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