Does Property Transaction Matter in Price Discovery in Real Estate Markets? Evidence from International Firm Level Data

Mingyan Cheung and Chicheong Lei

ERES from European Real Estate Society (ERES)

Abstract: We study the cointegrating relationship(s) between public and private market pricing of real estate using international data for U.S., U.K., Australia, Canada, Singapore and Japan from 2001 to 2013. Unlike earlier studies in the literature, we employ a unique dataset of property transaction to form public and private return pairs around transaction windows, not by regular calendar days. We estimate the normalized Gonzalo and Granger (1995) common factor loadings of the public and private real estate markets by vector error-correction models and find significant proportion of price discovery from the private markets of U.K., Australia, Singapore and Japan, in contrast to previous studies. However we also find significant heterogeneity across property types and individual firms within each type. Further investigation of the VECM suggests that variances of price innovation and the short-run dynamic adjustment mechanism change significantly over the recent crisis. Our results are robust to the (de)leverage of REIT returns and length of transaction windows.

JEL-codes: R3 (search for similar items in EconPapers)
Date: 2014-01-01
New Economics Papers: this item is included in nep-sea
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