This study explores whether and how office property prices diffuse across quality classes in Hong Kong. The empirical results reveal that the trends in office property prices are stochastic and demonstrate significant price lead-lag relationships among office property classes. The lead-lag patterns are apparent in both the long run and the short run. In addition, shocks from Class C prices have the strongest and longest-lasting impact on office prices in Hong Kong. In addition to providing new evidence on the ripple effect of commercial property prices across quality classes, this is the first study to explore the ripple effect of commercial property prices in both the short run and the long run. This study is also the first to employ the Vogelsang test (1998) and impulse response analysis to investigate the diffusion of commercial property prices. The findings have implications for government authorities, investors, and financial institutions in terms of policy formation, the timing of office property investments, and the diversification of their office-property-related portfolios.
Keywords: Office; Commercial Property; Ripple Effect; Quality Class; Filtering Down; Trading Up.Ahking, F. W. (2002). Model mis-specification and Johansen`s cointegration analysis: aAn application to the US money demand. Journal of Macroeconomics, 24(1), 51–-66.
Akaike, H. (1969). Fitting autoregressive models for prediction. Annals of the iInstitute of Statistical Mathematics, 21(1), 243–-247.
Akaike, H. (1974). A new look at statistical model identification. IEEE Transactions on Automatic Control, 19(6), 716–-723.
Alexander, C., & Barrow, M. (1994). Seasonality and cointegration of regional house prices in the UK. Urban Studies, 31(10), 1667–-1689.
Amdur, D., & Kiziler, E. E. (2014). Trend shocks and the countercyclical US current account. Canadian Journal of Economics, 47(2), 494–-516.
Andersson, B. (1999). On the causality between saving and growth: lLong-and short-run dynamics and country heterogeneity (wWorking pPaper No. x). Uppsala, Sweden: Department of Economics, Uppsala University.
Bai, J., & Perron, P. (1998). Estimating and testing linear models with multiple structural changes. Econometrica, 66, 47–78.
Bai, J., & Perron, P. (2003). Computation And analysis of multiple structural change models. Journal of Applied Econometrics, 6, 72–78.
Balcilar, M., Beyene, A. D., Gupta, R., & Seleteng, M. (2013). “Ripple” effects in South African house prices. Urban Studies, 50(5), 876–-894.
Brown, R. J., Li, L. H., & Lusht, K. (2000). A note on intra city geographic diversification of real estate portfolios: eEvidence from Hong Kong. Journal of Real Estate Portfolio Management, 6(2), 131–-140.
Chang, C. O., & Chen, M. C. (2011). Taiwan: Housing bubbles and affordability. In A. Bardhan, R. H. Edelstein, & C. A. Kroll (Eds.), Global housing markets: Crises, policies, and institutions (pp. 447–-463). Wiley, New York: Wiley.
Chau, K., Macgregor, B. D., & Schwann, G. M. (2001). Price discovery in the Hong Kong real estate market. Journal of Property Research, 18(3), 187–-216.
Chaudhry, M. K., Christie-David, R. A., & Sackley, W. H. (1999). Long-term structural price relationships in real estate markets. Journal of Real Estate Research, 18(2), 335–-354.
Choi, I. N. (2001). Unit root tests for panel data. Journal of International Money and Finance, 20(2), 249–-272.
Cook, S. (2003). The convergence of regional house prices in the UK. Urban Studies, 40(11), 2285–2294.
Cook, S. (2005). Detecting long‐run relationships in regional house prices in the UK. International Review of Applied Economics, 19(1), 107–-118.
Cook, S., & Speight, A. (2007). Temporal dependencies in UK regional house prices. Quantitative and Qualitative Analysis in Social Sciences, 1(3), 63–-80.
Coulson, N. E., & McMillen, D. P. (2007). The dynamics of intraurban quantile house price indexes. Urban Studies, 44(8), 1517–-1537.
Dickey, D. A., & Fuller, W. A. (1979). Distribution of the estimators for autoregressive time series with a unit root. Journal of the American Statistical Association, 74, 427–-431.
Drake, L. (1995). Testing for convergence between UK regional house prices. Regional Studies, 29(4), 357–-366.
Engle, R. F., & Granger, C. W. J. (1987). Co-integration and error correction: rRepresentation, estimation, and testing. Econometrica, 55(2), 251–-276.
Füss, R., Zhu, B., & Zietz, J. (2011). US regional housing bubbles, their co-movements and spillovers (Working Paper No. x). Wiesbaden, Germany: EBS Universität für Wirtschaft und Recht.
Giussani, B., & Hadjimatheou, G. (1991). Modeling regional house prices in the United Kingdom. Papers in Regional Science, 70(2), 201–219.
Guirguis, H. S., Giannikos, C. I., & Garcia, L. G. (2007). Price and volatility spillovers between large and small cities: A study of the Spanish market. Journal of Real Estate Portfolio Management, 13(4), 311–-316.
Hadri, K. (2000). Testing for stationarity in heterogeneous panel data. Econometrics Journal, 3(2), 148–-161.
Hannan, E. J., & Quinn, B. G. (1979). The determination of the order of an autoregression. Journal of the Royal Statistical Society, Series B (Methodological), 41(2), 190–-195.
Hartzell, D. J., Shulman, D. G., & Wurtzebach, C. H. (1987). Refining the analysis of regional diversification for income-producing real estate. Journal of Real Estate Research, 12(2), 85–-95.
Ho, L. S., Ma, Y., & Haurin, D. R. (2008). Domino effects within a housing market: The transmission of house price changes across quality tiers. Journal of Real Estate Finance and Economics, 37(4), 299–-316.
Holmes, M. J. (2007). How convergent are regional house prices in the United Kingdom? Some new evidence from panel data unit root testing. Journal of Economic and Social Research, 9(1), 1–-17.
Holmes, M. J., & Grimes, A. (2008). Is there long-run convergence among regional house prices in the UK? Urban Studies, 45(8), 1531–-1544.
Holmes, M. J., Otero, J., & Panagiotidis, T. (2011). Investigating regional house price convergence in the United States: Evidence from a pair-wise approach. Economic Modeling, 28(6), 2369–-2376.
Hoover, M. D. (2006, March 12)., Detailed analysis encouraged for investors buying retail property (working paper). San Antonio Business Journal. Retrieved January 6, 2017 from: http://www.bizjournals.com/sanantonio/stories/2006/03/13/focus4.html?page=all.
Hui, H. C. (2010). House price diffusions across three urban areas in Malaysia. International Journal of Housing Markets and Analysis, 3(4), 369–-379.
Im, K. S., Pesaran, M. H., & Shin, Y. (2003). Testing for unit roots in heterogeneous panels. Journal of Econometrics, 115(1), 53–-74.
Johansen, S. (1988). Statistical analysis of cointegration vectors. Journal of Economic Dynamics and Control, 12(2), 231–-254.
Kwiatkowski, D., Phillips, P. C. B., Schmidt, P., & Shin, Y. (1992). Testing the null hypothesis of stationarity against the alternative of a unit root: How sure are we that economic time series have a unit root? Journal of Econometrics, 54(1), 159–-178.
Lee, M.-L., & Chiang, K. (2004). Substitutability between equity REITs and mortgage REITs. Journal of Real Estate Research, 26(1), 95–-114.
Lee, M.-T., Lee, M.-L., & Lin, S.-H. (2014). Trend properties, cointegration, and diffusion of pre-sale house prices in Taiwan: Can Taipei`s house prices ripple out? Habitat International, 44, 432–-441.
Leung, K.-Y., Cheung, W.-Y., & Ding, E. J. (2008). Intra-metropolitan office price and trading volume dynamics: Evidence from Hong Kong. International Real Estate Review, 11(2), 47–-74.
Levin, A., Lin, C.-F., & Chu, C.-S. J. (2002). Unit root tests in panel data: Asymptotic and finite-sample properties. Journal of Econometrics, 108(1), 1–-24.
Liu, J., Wu, S., & Zidek, J. V. (1997). On segmented multivariate regression. Statistica Sinica, 7, 497–525.
Lütkepohl, H. (2005). New introduction to multiple time series analysis. Berlin, Germany: Springer.
Luo, Z. Q., Liu, C., & Picken, D. (2007). Housing price diffusion pattern of Australia`s state capital cities. International Journal of Strategic Property Management, 11, 227–-242.
Lütkepohl, H. (1991). Introduction to multiple time series analysis. New York, NY: Springer-Verlag.
MacDonald, R., & Taylor, M. P. (1993). Regional house prices in Britain: Long‐run relationships and short‐run dynamics. Scottish Journal of Political Economy, 40(1), 43–-55.
Maddala, G. S., & Wu, S. (1999). A comparative study of unit root tests with panel data and a new simple test. Oxford Bulletin of Economics and Statistics, 61(S1), 631–-652.
Meen, G. (1999). Regional house prices and the ripple effect: A new interpretation. Housing Studies, 14(6), 733–- 753.
Miao, H., Ramchander, S., & Simpson, M. W. (2011). Return and volatility transmission in US housing markets. Real Estate Economics, 39(4), 701–-741.
Murray, C. J., & Nelson, C. R. (2000). The uncertain trend in US GDP. Journal of Monetary Economics, 46(1), 79–-95.
Naoussi, C. F., & Tripier, F. (2013). Trend shocks and economic development. Journal of Development Economics, 103, 29–-42.
O`Flaherty, B. (1996). Making room: The economics of Hhomelessness. Cambridge, MA: Harvard University Press
.
Oikarinen, E. (2004). The diffusion of housing price movements from the center to surrounding areas. Journal of Housing Research, 15(1), 3–-28.
Ortalo-Magné, F., & Rady, S. (2004). Housing transactions and macroeconomic fluctuations: A case study of England and Wales. Journal of Housing Economics, 13(4), 287–-303.
Ortalo-Magné, F., & Rady, S. (2006). Housing market dynamics: On the contribution of income shocks and credit constraints. Review of Economic Studies, 73(2), 459–-485.
Pacific Assets Management Co. Ltd. (2011), Foreigners bought 30 thousands square meters of land in March. Retrieved January 5, 2017 from: http://www.pamc.tw/front/bin/partprint.phtml?Part=news_90&Category=0&Style=1.
Park, J. Y. (1990). Testing for unit roots and cointegration by variable addition. In T. Fomby & F. Rhodes (Eds.), Advances in econometrics:. Cointegration, spurious regressions and unit roots (pp. 107–-134)., London, UK: JAI Press.
Park, J. Y., & Choi, B. (1988). A new approach to testing for a unit root (wWorking pPaper No. x). Ithaca, NY: Center for Analytic Economics, Cornell University.
Phillips, P. C. B., & Perron, P. (1988). Testing for a unit root in time series regression. Biometrika, 75(2), 335–-346.
Pollakowski, H. O., & Ray, T. S. (1997). Housing price diffusion patterns at different aggregation levels: aAn examination of housing market efficiency. Journal of Housing Research, 8, 107–-124.
Quigley, J. M., & Van Order, R. (1991). Defaults on mortgage obligations and capital requirements for US savings institutions: A policy perspective. Journal of Public Economics, 44(3), 353–-369.
Real Estate Investar. (2012). Finding the right suburb to invest in-using the idea of the ripple effect. Retrieved January 6, 2017 from: https://www.realestateinvestar.com.au.
Rishiwala, K. (2011). Singapore ranks 9th on the global property investment list. Retrieved January 7, 2017 from: http://business.asiaone.com/print/Business/News/Story/A1Story20111006-303646.html.
Schwarz, G. (1978). Estimating the dimension of a model. Annals of Statistics, 6(2), 461–-464.
Shi, S., Young, M., & Hargreaves, B. (2009). The ripple effect of local house price movements in New Zealand: How far does the ripple effect spread? Journal of Property Research, 26(1), 1–-24.
Sing, T.-F., Tsai, I., & Chen, M.-C. (2006). Price dynamics in public and private housing markets in Singapore. Journal of Housing Economics, 15(4), 305–-320.
Stein, J. C. (1995). Prices and trading volume in the housing market: A model with down payment effects. Quarterly Journal of Economics, 110(2), 379–-406.
Stevenson, S. (2004). House price diffusion and inter-regional and cross-border house price dynamics. Journal of Property Research, 21(4), 301–-320.
Sweeney, J. L. (1974). A commodity hierarchy model of the rental housing market. Journal of Urban Economics, 1(3), 288–-323.
Tarbert, H. (1998), The long-run diversification benefits available from investing across geographical regions and property types: Evidence from cointegration tests. Economic Modelling, 15(1), 49–-65.
Tolhurst, C. (2011). Be a part of the new wave. Domain. Retrieved January 7, 2017 from: http://news.domain.com.au/domain/home-investor-centre/be-a-part-of-the-new-wave-20110325-1c9r0.htmlVogelsang, T. J. (1998). Trend function hypothesis testing in the presence of serial correlation. Econometrica, 66(1), 123–-148.
Williams, J. E. (1996). Real estate portfolio diversification and performance of the twenty largest MSAs. Journal of Real Estate Portfolio Management, 2(1), 19–-30.
Wolverton, M. L., Cheng, P., & Hardin, W. G. (1998). Real estate portfolio risk reduction through intracity diversification. Journal of Real Estate Portfolio Management, 4(1), 35–-41.