Volatility and Liquidity in the Real Estate Market

45 Pages Posted: 27 Jun 2016 Last revised: 21 Mar 2018

See all articles by Xin He

Xin He

Surrey International Institute, Dongbei University of Finance and Economics

Zhenguo (Len) Lin

Florida International University (FIU) - Hollo School of Real Estate

Yingchun Liu

Dept. of Finance, Insurance, Real Estate and Law, University of North Texas

Date Written: January 19, 2018

Abstract

Empirical evidence suggests that when the market becomes increasingly volatile, trading activities may be depressed or even halted. We develop a simple model to formally study the relationship between market volatility and asset liquidity in the real estate market. It is shown that an increase in market volatility negatively affects asset liquidity when information is asymmetric between the market participants. Based on this result we propose a new theory for the brokerage function at the bargaining stage of real estate trading, namely, whether the brokers’ role is to facilitate or hinder trading hinges on whether their involvement serves to mitigate or exacerbate the problem of information asymmetry between the buyers and sellers. The result is also used to offer theoretical explanations for some empirical findings in the literature.

Keywords: market volatility, liquidity, real estate market

JEL Classification: R31, G10

Suggested Citation

He, Xin and Lin, Zhenguo and Liu, Yingchun, Volatility and Liquidity in the Real Estate Market (January 19, 2018). Journal of Real Estate Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2800676 or http://dx.doi.org/10.2139/ssrn.2800676

Xin He

Surrey International Institute, Dongbei University of Finance and Economics ( email )

217 Jianshan St,
Shahekou
Dalian, Liaoning
China

Zhenguo Lin (Contact Author)

Florida International University (FIU) - Hollo School of Real Estate ( email )

Miami, FL 33199
United States
3057799248 (Phone)

Yingchun Liu

Dept. of Finance, Insurance, Real Estate and Law, University of North Texas ( email )

1155 Union Circle #305340
Denton, TX 76203
United States

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