What influences real estate volatility in Hong Kong? An ARMA-GARCH approach
International Journal of Housing Markets and Analysis
ISSN: 1753-8270
Article publication date: 17 February 2021
Issue publication date: 10 January 2022
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.
Keywords
Acknowledgements
This paper is supported by the Overseas Postgraduate Students Training Project between the University of North Carolina at Chapel Hill and Beijing Normal University. The authors appreciate the financial support from the School of Government, Beijing Normal University.
The authors express their special thanks to Professor Yan Song at the Department of City and Regional Planning, UNC-Chapel Hill, for inviting them to visit the Center for Urban and Regional Studies at UNC. The authors would like to thank Professor Jie Jiang at the Department of Finance, Beijing Normal University, for her valuable advice on Financial Econometrics. All errors would be authors’ if there were any.
Citation
Wang, S. and Hartzell, D. (2022), "What influences real estate volatility in Hong Kong? An ARMA-GARCH approach", International Journal of Housing Markets and Analysis, Vol. 15 No. 1, pp. 19-34. https://doi.org/10.1108/IJHMA-08-2020-0099
Publisher
:Emerald Publishing Limited
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