What influences real estate volatility in Hong Kong? An ARMA-GARCH approach

Abstract

Purpose This paper aims to examine real estate price volatility in Hong Kong. Monthly data on housing, offices, retail and factories in Hong Kong were analyzed from February 1993 to February 2019 to test whether volatility clusters are present in the real estate market. Real estate price determinants were also investigated. Design/methodology/approach Autoregressive conditional heteroscedasticity–Lagrange multiplier test is used to examine the volatility clustering effects in these four kinds of real estate. An autoregressive and moving average model–generalized auto regressive conditional heteroskedasticity (GARCH) model was used to identify real estate price volatility determinants in Hong Kong. Findings There was volatility clustering in all four kinds of real estate. Determinants of price volatility vary among different types of real estate. In general, housing volatility in Hong Kong is influenced primarily by the foreign exchange rate (both RMB and USD), whereas commercial real estate is largely influenced by unemployment. The results of the exponential GARCH model show that there were no asymmetric effects in the Hong Kong real estate market. Research limitations/implications This volatility pattern has important implications for investors and policymakers. Residential and commercial real estate have different volatility determinants; investors may benefit from this when building a portfolio. The analysis and results are limited by the lack of data on real estate price determinants. Originality/value To the best of the authors’ knowledge, this paper is the first study that evaluates volatility in the Hong Kong real estate market using the GARCH class model. Also, this paper is the first to investigate commercial real estate price determinants.

Modeling the Volatility of Daily Listed Real Estate Returns during Economic Crises: Evidence from Generalized Autoregressive Conditional Heteroscedasticity Models

“…In comparison to similar studies on the real estate sector, the asymmetry and long-range dependence identified in the Swedish real estate sector are consistent with other markets like the U.S, Australia, Canada, France, and the Netherlands [38][39][40]. However, the volatility pattern of the Swedish real estate sector is different to emerging markets like Hong Kong, where an asymmetric effect does not exist [71], and South Africa, where the effect of positive news outrides the effect of negative ones [72]. It is also important to notice that the listed real estate sector is different from other sectors because listed real estate is affected by both occupier sentiment and investor sentiment which, could exhibit a different asymmetric volatility pattern to the market shock [73,74].…”

A multifractal detrended fluctuation analysis of housing market: a role of financial crises in developed economies

“…Therefore, it is important to understand the house prices movements and their forecasting (Katsiampa and Begiazi, 2019). The researchers use different econometric techniques to forecast house prices such as the GARCH model (Hossain and Latif, 2009; Wang and Hartzell, 2021), error correction model (Malpezzi, 1999; Holly and Jones, 1997), regime-switching models (Crawford and Fratantoni, 2003), Monte Carlo simulation (Giaccotto and Clapp, 1992), autoregressive integrated moving average (ARIMA), Kalman filtering techniques (Clapp and Giaccotto, 2002). Moreover, most of the studies use the univariate model to analyze house prices’ movements and focus particularly on UK and US markets Dolde and Tirtiroglu (1997), Karoglou et al (2013), Webb et al (2016) with a few exceptions.…”

International Real Estate Review

“…There has been much research on the Hong Kong real estate market that cover most parts of the real estate market. Research has focused on real estate market features including the real estate cycle (Wang et al, 2000), real estate volatility (Wang and Hartzell, 2021), housing supply (Leung et al, 2020), price discovery process (Schwann and Chau, 2003;Chau et al, 2001) and transaction costs (Walters, 2002). Some special issues in the Hong Kong real estate market have also been examined in previous research, including comprehensive development areas (Raymond, 2001) and forward sales (Wong et al, 2006).…”