The Dynamics and Volatility of Commercial and Residential Property Prices: Theory and Evidence

29 Pages Posted: 11 Apr 2004

See all articles by Kamhon Kan

Kamhon Kan

Academia Sinica - Institute of Economics

Sunny Kai Sun Kwong

The Chinese University of Hong Kong (CUHK) - Department of Economics

Charles Ka Yui Leung

The Chinese University of Hong Kong (CUHK) - Department of Economics

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Abstract

This article investigates the dynamics of property prices and their interaction with output growth in a general equilibrium model. Closed form solutions and testable hypotheses are derived from a mildly restricted version of the model. The testable hypotheses are broadly supported empirically. In particular, (1) the volatility of commercial property prices is higher than that of residential property prices, (2) each of the lagged, contemporary, and forward commercial property prices is positively correlated with residential property prices, (3) the contemporaneous covariance between the two property prices is larger than the lagged covariance, and (4) output growth is positively correlated with both property prices. These results are consistent with simulations results that are based on a more general specification of the model.

Suggested Citation

Kan, Kamhon and Kwong, Kai Sun Sunny and Leung, Ka Yui Charles, The Dynamics and Volatility of Commercial and Residential Property Prices: Theory and Evidence. Journal of Regional Science, Vol. 44, pp. 95-123, February 2004. Available at SSRN: https://ssrn.com/abstract=513702

Kamhon Kan (Contact Author)

Academia Sinica - Institute of Economics ( email )

128 Academia Road, Section 2
Nankang
Taipei, 11529
Taiwan

Kai Sun Sunny Kwong

The Chinese University of Hong Kong (CUHK) - Department of Economics ( email )

Shatin, N.T.
Hong Kong
2609-7055 (Phone)

Ka Yui Charles Leung

The Chinese University of Hong Kong (CUHK) - Department of Economics ( email )

Shatin, N.T.
Hong Kong
+852-2609-7158 (Phone)
+852-2603-5805 (Fax)

HOME PAGE: http://www.cuhk.edu.hk/eco/staff/kyleung

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