Trading Volume-Induced Spatial Autocorrelation in Real Estate Prices

Posted: 20 Mar 2013 Last revised: 19 Jun 2015

See all articles by C. Yiu

C. Yiu

Hong Kong University of Science & Technology (HKUST)

K.W. Chau

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

Date Written: March 19, 2013

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

Suggested Citation

Yiu, C. and Chau, Kwong Wing, Trading Volume-Induced Spatial Autocorrelation in Real Estate Prices (March 19, 2013). Journal of Real Estate Finance and Economics, Vol. 46, No. 4, 2013, Available at SSRN: https://ssrn.com/abstract=2235709

C. Yiu

Hong Kong University of Science & Technology (HKUST) ( email )

Clearwater Bay
Kowloon, 999999
Hong Kong

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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