The Forecasting Capacity of Housing Price Expectations

This study captures the essential elements of the price expectations of market participants in a rising market. Adopting a forward-looking approach, this paper explores the effectiveness of expectations as an indicator of forthcoming housing price changes in Hong Kong. Examination of the quarterly survey data from December 2003 to September 2007 indicates that both homeowners and non-homeowners tend to overestimate the probability of future housing price increases yet underestimate its volatility. This adds weight to the argument that market participants are generally not rational in the prediction of price movement. Homeowners, investors and potential home buyers have more or less the same level of confidence about the future market outlook. Like non-owners, they expect higher prices. The number of correct forecasts exceeds incorrect forecasts, suggesting that overall price expectations are fairly close to realization. It can be broadly concluded that the aggregate price expectations in the long run can be an appropriate forecasting tool for future market performance.Price expectations; Forecastability; Housing market; Hong Kong

Real option and vertical mixed-use development

Vertical mixed-use development is a favourite choice in urban development in high-density Asian cities to increase the land use efficiency. The flexibility of construction timing and the restrictions by lease contracts in vertical mixeduse projects are usually different from horizontal ones and single-use properties. To improve the valuation for vertical mixed-use projects, this study re-examines the real option pricing model. Simultaneous development for different uses and a finite maximum waiting period are the major characteristics of these projects. An approach is introduced to determine whether to develop a mixed-use project vertically or horizontally on the basis of a statistics called the critical height premium. The vertical mixed-use project pricing model can be further verified by containing a height premium if market price information is derived from non-vertical mixed-use properties. This study suggests a more comprehensive real option approach to quantify the advantages and disadvantages of operating vertical mixed-use developments

Optimal trading strategy during bull and bear markets for Hong Kong-listed stocks

The “buy-and-hold” strategy based on the EMH was believed by many people to be optimal for a long time. However, there has been more criticism on the EMH since the global financial crisis in 2008. Hence many people attempt to find a trading strategy to beat “buy-and-hold”. Moreover, the financial market fluctuates a lot. Sometimes it is in a bull market, but it may be in a bear market during other periods of time, so the optimal strategy during different periods of time may vary and hence switching of strategies may be necessary. In this study, we apply Hui and Chan (2018)’s generalized time-dependent strategy on 12 Hong Kong listed stocks during the whole period of observation and two sub-periods. The results show that when the sub-period December 31, 2004–December 31, 2008 is chosen, the strategy outperforms “buy-and-hold” by the largest extent. This reflects that the strategy is most effective during adverse market conditions. This study can help investors to apply appropriate trading strategies to earn more profits, and help property practitioners to improve their strategic property management to increase the value of their portfolio

Forecasting property price indices in Hong Kong based on grey models

The real estate market in Hong Kong plays an important role in its economy. The property prices have been increasing a lot since 2009, which have become a major concern. However, few studies have been done to forecast the property price indices in Hong Kong. In this paper, two grey models, GM(1,1) and GM(0,N), are introduced for the forecasting. The results show that GM(1,1) has a better performance when forecasting with stable trend data, while GM(0,N) is more suitable for forecasting data in fluctuating trend. The sensitivity analysis for GM(0,N) shows that Population(POP) and Best Lending Rate(BLR) are significantly sensitive factors for data in stable trend. While for the fluctuating data, sensitivity of each factor presents uncertainties. This study also compares the forecasting performance of grey models with the ANN model and ARIMA model. The study demonstrates that grey models are more suitable for forecasting the Hong Kong property price indices than others

Idiosyncratic risk and spillover effect in REIT returns

Nowadays, idiosyncratic risk has substantial impacts on the risk control of portfolio construction. However, little research has been done on the spillover effect of idiosyncratic risk from global markets in REIT returns. A risk-return model is developed to examine the effects of idiosyncratic risk and its spillover on the short-run dynamics of REIT returns in 10 major REIT markets between 2001 and 2014. Variance decomposition provides evidence that idiosyncratic risk exceeds market risk most of the time. The risk-return models demonstrate that the spillover effect of idiosyncratic risk globally played a more significant role than idiosyncratic risk in the return dynamics during the subprime mortgage crisis. Furthermore, we analyse the asymmetric responses of volatility in REIT returns. The results show that the Netherlands is the most strongly preferred market in terms of earning excess returns, while the US market is unique in that the idiosyncratic risk and spillover effect tend to enlarge the fluctuations in REIT returns

Access to mortgage credit and housing price dynamics

In real estate studies, arguably the most important topic revolves around what actually affect the price of properties. In addition to various macroeconomic factors, the mortgage industry is also believed to play a major role. Nonetheless, despite its profound implications on the banking sector, the property market, and the economy as a whole, there is no consensus as to the relationship between property price and bank mortgage lending. In light of this, this paper aims to investigate the relationship between property price and mortgage lending, along with other macroeconomic variables, in two housing sub-markets of Hong Kong (i.e. the mass housing market and the luxury housing market). The findings illustrate that one-way directional relationships are discovered 1) from mass housing price to mortgage lending; 2) from luxury housing price to mortgage lending; and 3) from mass housing price to luxury housing price. Macroeconomic factors such as GDP, inflation rate, and interest rate are also found to play a major role in influencing the prices of both property markets and the amount of outstanding mortgage loans. Implications based upon these findings are also discussed

New tests of calendar effects on equity and securitized real estate markets

We construct two new tests of calendar effects, apply them on 12 stock indices during 1996–2016, and compare the results with that using Hui and Chan (2016)’s method. The results show that the January and Halloween effects are significant for the four western generalized equity indices for small moving-window sizes. Furthermore, the securitized real estate indices show a greater difference in the overall calendar effect between the three methods than the general equity indices do. This study has an implication that a certain sector of the market is riskier than the whole market

Contagion across real estate and equity markets during European sovereign debt crisis

Standard methods of testing contagion may not work well if the data set is not normally distributed. To cope with this problem, Hatemi-J and Hacker (2005) proposed a new case-resampling bootstrap method to test contagion. In this paper, we extend this method to test the parameters in the Forbes-Rigobon multivariate (FRM) test. The new method has the advantage that the bivariate model is extended to a multivariate framework which jointly models and tests all combinations of contagious linkages. We apply our method to investigate contagion across equity and real estate markets of four countries: Greece, U.K., U.S. and Hong Kong, during the European sovereign debt crisis, and compare the result with that by performing the FRM test directly. Two important results are found. Firstly, both tests we use give similar p-values of the coefficients which indicate the significance of contagion. Secondly, for both tests, the contagion pattern in the equity and real estate markets are different. Our study has an implication to investors that they should regularly review their portfolio and be aware of contagion triggered by a crisis. This would help them reduce their loss and is useful in strategic property management

Can we beat the “buy-and-hold” strategy? Analysis on European and American securitized real estate indices

The aim of this paper is to use the Shiryaev-Zhou index to examine the performances of securitized real estate indices of four countries: US, UK, Canada and Germany. The result reveals that the Shiryaev-Zhou index is a leading indicator and can act as a predictor on certain securitized real estate indices. Furthermore, our results show that the trading strategy we constructed according to the Shiryaev-Zhou index generally outperforms the “buy-and-hold” strategy under the assumption of no transaction costs. The stronger the predictive power of the Shiryaev-Zhou index is, the larger extent our trading strategy beats the “buy-and-hold” strategy. This is useful in strategic property management that property practitioners can follow our strategy to trade real estate stocks/funds in order to increase their profits

A new time-dependent trading strategy for securitized real estate and equity indices

The “buy-and-hold” strategy based on the EMH has been adopted by many investors for long. However, the global financial crisis in 2008 caused more doubt to be cast on EMH. Therefore, many scholars have attempted to create a trading strategy which can outperform the “buy-and-hold” strategy. In this study, we use the Shiryaev-Zhou index to derive a new generalized time-dependent strategy of which the moving-window size can be changed to see how the moving-window size affects the resulting profit of our strategy. We test our strategy on the securitized real estate and general equity indices of six economies, and find the optimal moving-window size for our strategy on each stock index. The results show that when the optimal moving-window size is used, our strategy outperforms the “buy-and-hold” strategy for most cases. Furthermore, during stock market downturns, it’s advisable to adopt our strategy, preferably with larger moving-window sizes, to prevent losses when the stock prices fall rapidly. However, during long periods of booms, it’s better to adhere to the “buy-and-hold” strategy. This implies that we should switch strategies when market fundamentals changes significantly. Property practitioners can also apply this strategy for a better portfolio management to increase their profit. First published online 29 September 201