We examine the effect of forward sale (pre-sale) activities on the volatility of spot prices in the real estate market. The abundance of pre-sales data and major changes in regulatory control on the pre-sale market during the 90's in Hong Kong allow us to undertake empirical tests using Hong Kong's real estate data. Our results show that the volatility of spot prices increased significantly after forward sales were severely dampened by regulatory control measures introduced in 1994, but decreased again when the measures were partly relaxed in 1998. The results contribute to the long lasting debate on whether the introduction of a futures market reduces the volatility of spot prices. Previous studies were mainly conducted in markets with low transaction costs, notably financial markets. By utilizing the unique regulatory changes in the pre-sale market of Hong Kong, we are able to conduct an experiment on the conditional volatility of spot prices in a high information-cost environment, thereby shedding light on the important role of forward housing contracts in providing price expectation information for spot trading. Copyright Springer Science + Business Media, Inc. 2006Forward contract, GARCH model, Pre-sale, Price volatility,

Auction, Bidding outcome, Market sentiments, Winner’s curse,

Land and real estate are intrinsically related but generally traded in two different markets. Vacant land, being a major "raw material" for development of real estate, is traded by developers who actively manage development risk for profit. Real estate, being a long lived final product, is traded by end-users or investors for use or investment in the secondary market. This study examines price discovery between the two markets. The key question is whether land transactions, in the form of public auctions, convey any new information to the secondary real estate market. Our results suggest unexpected land auction outcomes have both market-wide and local effects on real estate prices. However, the impacts are asymmetric. We found that lower than expected land auction prices have a significant negative market-wide and local impact on real estate prices while higher than expect land auction prices have little or no impact.

No abstract

This paper examines the hedging behaviour of a value-maximizing firm that exists for two periods. The firm faces uncertain income and is subject to tax asymmetries with no loss-offset provisions. The firm has access to unbiased futures contracts in each period for hedging purposes. We impose a liquidity constraint on the firm. Specifically, whenever the net interim loss due to its first-period futures position exceeds a predetermined threshold level, the firm is forced to terminate its risk management program and, therefore, is prohibited from trading the futures contracts in the second period. We show that the liquidity-constrained firm optimally adopts a full-hedge via its second-period futures position to minimize the extent of the income risk and an under-hedge via its first-period futures position to limit the degree of the liquidity risk.