An In-Sample and Out-of-Sample Empirical Investigation of the Nonlinearity in House Prices of South Africa

Mehmet Balcilar, Rangan Gupta and Zahra Shah ()
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Zahra Shah: Department of Economics, University of Pretoria

No 201008, Working Papers from University of Pretoria, Department of Economics

Abstract: This paper first tests if housing prices in the five segments of the South African housing market, namely, large-middle, medium-middle, small-middle, luxury and affordable, exhibits non-linearity based on smooth transition autoregressive (STAR) models estimated using quarterly data covering the period of 1970:Q2 to 2009:Q3. We find overwhelming evidence of non-linearity in these five segments based on in-sample evaluation of the linear and non-linear models. We then provide further support for non-linearity by comparing one- to four-quarters-ahead out-of-sample forecasts of the non-linear time series model with those of the classical and Bayesian versions of the linear autoregressive (AR) models for each of these segments, over an out-of-sample horizon of 2001:Q1 to 2009:Q3, using an in-sample period from 1970:Q2 to 2000:Q4. Our results indicate that barring the one-, two and four-step(s)-ahead forecasts of the small-middle-segment, the non-linear model always outperforms the linear models.

Keywords: Bayesian autoregressive models; Housing market; smooth transition autoregressive models; Forecast accuracy (search for similar items in EconPapers)
JEL-codes: C12 C13 C22 C52 C53 R31 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2010-03
New Economics Papers: this item is included in nep-afr, nep-for and nep-ure
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Citations: View citations in EconPapers (4)

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Journal Article: An in-sample and out-of-sample empirical investigation of the nonlinearity in house prices of South Africa (2011)
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