Risk appetite of real estate and property security markets: an empirical study of Hong Kong
Journal of Property Investment & Finance
ISSN: 1463-578X
Article publication date: 28 September 2010
Abstract
Purpose
The purpose of this paper is to investigate the risk appetite in Hong Kong real estate and property security markets in the recent episode of global financial crisis.
Design/methodology/approach
An advanced methodology developed from the previous risk appetite measurement and Markov Chain Monte Carlo simulation is used. Traditional research on risk appetite had never been applied to the real estate market before because no options underlying properties exist. However, this paper makes a contribution that in the absence of options, risk appetite indicators are derived for the real estate and property security markets.
Findings
The empirical results show that the risk appetite for the real estate market started to fall markedly in the third quarter of 2008, matching the very period of the Sub‐prime Mortgage Crisis in the USA. By contrast, those for the property security index were stabilizing in that period. This implies that investors' risk attitude to the real estate market differs from that to the property security market. Furthermore, the correlations between the index prices and the corresponding risk appetite in each market suggest that investors are “risk neutral” in the real estate market, while they are “risk lovers” in the property security market.
Originality/value
This paper, to the authors' best knowledge, is the first study to explore the risk appetite indicator in the real estate market, which could enable us to shed new light on the market price movement from the perspective of investors' market sentiment.
Keywords
Citation
Hui, E., Wang, H. and Zheng, X. (2010), "Risk appetite of real estate and property security markets: an empirical study of Hong Kong", Journal of Property Investment & Finance, Vol. 28 No. 6, pp. 420-433. https://doi.org/10.1108/14635781011080285
Publisher
:Emerald Group Publishing Limited
Copyright © 2010, Emerald Group Publishing Limited