Convergence of Metropolitan House Prices in South Africa: A Re-Examination Using Efficient Unit Root Tests

Sonali Das (), Rangan Gupta () and Patrick Kaya ()
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Sonali Das: LQM, CSIR, Pretoria
Patrick Kaya: Department of Economics, University of Pretoria

No 200922, Working Papers from University of Pretoria, Department of Economics

Abstract: This paper analyzes whether the Law of One Price (LOOP) holds in the housing market of five metropolitan areas of South Africa, namely Cape Town, Durban, Greater Johannesburg, Port Elizabeth/Uitenhage and Pretoria. We test the existence of LOOP using the efficient unit root tests proposed by Elliott et al. (1996) [DF-GLS] and Elliott (1999) [DF-GLSu] based on monthly data on residential property prices covering the period of 1967:01 to 2009:03 for the large-, medium and small-middle segments of the housing market. Based on the DF-GLSu test, we find overwhelming evidence of the existence of LOOP in twelve of the fifteen possible cases, especially as the sample period becomes more recent. More importantly, our results are in sharp contrast with those obtained by Burger and Van Rensburg (2008) using quarterly data based on the Im, Pesharan and Shin (IPS, 2003) test, which are, in turn, shown to be highly sensitive to frequency of the data and temporal aggregation. With the rejection or the non-rejection of the null hypothesis of unit roots, based on panel data tests, not providing sufficient evidence to conclude that all the series in the panels have a unit root or that they are all stationary, more reliability should be placed on our results obtained from the efficient unit root tests.

Keywords: Efficient Unit Root Tests; House Prices; Law of One Price; Price Convergence; Single Market (search for similar items in EconPapers)
JEL-codes: C12 C22 C21 D40 L85 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ure
Date: 2009-10
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