The Contestability of the Urban Land Market: An Event Study of Hong Kong Land Auctions

Posted: 10 Apr 2003

See all articles by Stephen Ching

Stephen Ching

School of Economics and Finance, The University of Hong Kong

Yuming Fu

National University of Singapore

Abstract

The traditional theory of urban land markets assumes perfect contestability - the absolute freedom of market entry - that compels developers to bid up the land rent to equal the economic profit from land use. This assumption, however, is untested empirically due to the difficulties in measuring the ex ante economic profit of land acquisition. We overcome these difficulties by applying the event-study methodology to Hong Kong government land auctions. When a developer acquires a site at a price below its fair market value, the rationality of the stock market entails a positive abnormal return on the developer's stock. Our analysis shows evidence of positive expected abnormal returns, indicating an imperfectly contestable land market. We further show that the expected abnormal return increases with the site value and the government land disposal level but decreases with the property market liquidity.

Keywords: urban land market, contestable market, economic profit, event study, auctions

JEL Classification: D43, D44, G14, L13, L85, R52

Suggested Citation

Ching, Stephen and Fu, Yuming, The Contestability of the Urban Land Market: An Event Study of Hong Kong Land Auctions. Available at SSRN: https://ssrn.com/abstract=368841

Stephen Ching

School of Economics and Finance, The University of Hong Kong ( email )

Pokfulam Road
Hong Kong

Yuming Fu (Contact Author)

National University of Singapore ( email )

Department of Real Estate, NUS Business School
15 Kent Ridge Drive
S119245
Singapore

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