Comparing Ask and Transaction Prices in the Swiss Housing Market

Ahmed Ahmed, Diego Ardila, Dorsa Sanadgol and Didier Sornette
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Ahmed Ahmed: ETH Zurich
Diego Ardila: ETH Zurich
Dorsa Sanadgol: ETH Zurich
Didier Sornette: Swiss Finance Institute and ETH Zürich

No 16-80, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We analyze the relationship between ask and transaction prices in the Swiss residential real estate market over the 2005-2015 period. First, we present strong evidence that ask and transaction prices are co-integrated across different market segments, but they do not Granger-cause one another. Second, we analyze the cross-sectional distributions of ask and transaction prices / per living space and conclude that they do not follow the same distribution, with the distribution of transaction prices close to a log normal distribution and the distribution of ask prices exhibiting slightly fatter tails. Finally, we show significant evidence that transaction prices tend to exceed ask prices during protracted booms and bubble regimes. We discuss these empirical patterns in light of theoretical housing search models, and provide support for the hypothesis that the 2005- 2015 Swiss market has been dominated by an auction-like dynamics. Hence, although ask prices constitute a suitable proxy to follow the development of the Switzerland's real estate market, especially given the sparsity of available transaction data, they might be prone to underestimate the extent of price increases when the market is booming, and the magnitude of the correction when the market enters the bust phase of the housing cycle.

Keywords: Ask prices; Transaction prices; Log normal distribution; Co-integration; Granger causality; Bubbles; LPPLS; Search models (search for similar items in EconPapers)
JEL-codes: C58 G01 R31 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2016-12
New Economics Papers: this item is included in nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1680

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