Short Sales and Price Discovery in the Hong Kong Real Estate Market

21 Pages Posted: 20 Jan 2017

See all articles by Siu Kei Wong

Siu Kei Wong

University of Hong Kong

Thomas Lai

Bauhinia Foundation Research Centre

Kuang Kuang Deng

Shanghai University of Finance and Economics

Date Written: Spring 2017

Abstract

Indirect real estate (IRE) returns are often shown to lead direct real estate (DRE) returns. Apart from differences in liquidity, transaction costs, and management skills, the DRE market is also less complete than the IRE market — when negative shocks arrive, one can only short IRE (e.g., real estate stocks or REITs), but not DRE. This study investigates if short sales in the IRE market convey any information to the DRE market. Based on high‐frequency (weekly) property price data in Hong Kong from 2000 to 2012, we find that short sales in the IRE market led DRE returns, even after controlling for the lagged IRE returns in a VAR model. This supports an information spillover mechanism in which the DRE market learns private information that is not reflected in IRE returns. The spillover effect, however, weakened after the recent global financial crisis because the increased uncertainty over the credibility of individual firms made short sales more reflective of firm‐specific information than real estate market fundamentals.

Suggested Citation

Wong, Siu Kei and Lai, Thomas and Deng, Kuang Kuang, Short Sales and Price Discovery in the Hong Kong Real Estate Market (Spring 2017). Real Estate Economics, Vol. 45, Issue 1, pp. 133-153, 2017, Available at SSRN: https://ssrn.com/abstract=2902378 or http://dx.doi.org/10.1111/1540-6229.12130

Siu Kei Wong (Contact Author)

University of Hong Kong ( email )

Pokfulam Road
Hong Kong, HK
China

Thomas Lai

Bauhinia Foundation Research Centre ( email )

18 Harcourt Road
Admiralty Centre Tower 1
Hong Kong

Kuang Kuang Deng

Shanghai University of Finance and Economics ( email )

Shanghai, 200433
China

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