Expectation, volatility and liquidity in the housing market

Xian Zheng

Applied Economics, 2015, vol. 47, issue 37, 4020-4035

Abstract: Measuring housing price volatility is fundamental to understanding the dynamics of housing price risk. This article aims to explore whether a liquidity factor plays a role in explaining the second moment (i.e. the volatility) of housing prices. Housing price volatility is measured as the conditional variance of a Generalized Auto Regressive Conditional Heteroscedasticity (GARCH) model under the Adaptive Expectations framework. The empirical evidence reveals that volatility transmits from smaller housing units to larger housing units, which indirectly supports the trade-up effect discussed in the literature. In addition, less liquid housing classes are more sensitive to unexpected liquidity shocks, and the starter housing class is extraordinarily sensitive to negative liquidity shocks. Consistent with friction search theory, pricing errors are alleviated as the trading volume increases, because the valuation price tends to be more accurate as more information is available.

Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://hdl.handle.net/10.1080/00036846.2015.1023943 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:applec:v:47:y:2015:i:37:p:4020-4035

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAEC20

DOI: 10.1080/00036846.2015.1023943

Access Statistics for this article

Applied Economics is currently edited by Anita Phillips

More articles in Applied Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().