Rational expectations and market fundamentals : Evidence from Hong Kong’s boom and bust cycles

Abstract

This paper uses an econometric approach to examine the relationship between real ( ex post) and rationally expected housing prices in Hong Kong over its boom and bust cycle. Models of market fundamentals are developed from a rational expectation hypothesis to compare the ex post housing prices and expected housing prices, and to test whether the housing price can reflect the market fundamentals. The findings suggest that the private housing price in Hong Kong is cointegrated to the market fundamentals in the long‐runP only; and exhibits a volatile performance in the short‐run. The short‐term market “noises” are believed largely to be the result of government intervention and unexpected market fluctuations.

Citation

Hui, E. and Lui, T. (2002), "Rational expectations and market fundamentals : Evidence from Hong Kong’s boom and bust cycles", Journal of Property Investment & Finance, Vol. 20 No. 1, pp. 9-22. https://doi.org/10.1108/14635780210416237