Nonlinear adjustment of short-term deviations impacts on the US real estate market

Yen-Hsien Lee and Chien-Liang Chiu

Applied Economics Letters, 2010, vol. 17, issue 6, 597-603

Abstract: This study examines whether nonlinear adjustment of short-term deviations impacts US real estate market returns by applying an exponential smooth transition threshold error-correction model with Generalized Auto Regressive Conditional Heteroscedasticity (GARCH) (ESTECM-GARCH). Empirical results demonstrate that the ESTECM-GARCH captures the dynamics of returns more effectively than the Error-Correction Model (ECM) and Exponential Smooth Transition Error-Correction Model (ESTECM). Consequently, the nonlinear behaviour of returns is driven by momentum noise traders and heterogeneous arbitrageurs in Real Estate Investment Trust (REIT) markets.

Date: 2010
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DOI: 10.1080/13504850802167165

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