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Detecting Bubbles in the Hong Kong Residential Property Market: An Explosive-Pattern Approach

Matthew S. Yiu and Lu Jin
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Matthew S. Yiu: Hong Kong Monetary Authority
Lu Jin: Hong Kong Monetary Authority

No 12012, Working Papers from Hong Kong Institute for Monetary Research

Abstract: This study applies the newly developed bubble detection method (Phillips, Wu and Yu, 2011) to identifying asset bubbles in the Hong Kong residential property market. Our empirical results show that the method is capable of detecting the 1997 bubble and is able to reveal the corresponding origination and collapse, showing its superiority over the standard unit root and co-integration method. During the period between mid-2009 and early 2011, the method indicates strong upward price pressure in the mass segment and bubble-type behaviour in two short periods of time in the luxury segment. The results, however, show potential shortcomings of the method including: the high correlation between the price-rent differentials and t-statistics near the critical values, and the symmetric property towards explosive growth and precipitant fall of the time series.

Keywords: Asset Bubble; Residential Property Prices; Right-Tailed Unit Root Test; Explosive Behaviour; Price-To-Rent Ratio (search for similar items in EconPapers)
JEL-codes: C22 G12 R31 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2012-01
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