ABSTRACT
This chapter is concerned with shock response patterns in the real estate market. It is motivated by the need to advance our knowledge about the response of the real estate market to shocks in the long run, and the impact of shocks in other economic and financial variables on the volatility in real estate. This knowledge would enable us to evaluate the effect on the real estate market when certain shocks occur or are forecast to occur, and to take corresponding measures accordingly. While there have been several studies on the long-run characteristics of the real estate market, they mainly used the cointegration technique to investigate the long-run co-movement of real estate and other economic and financial variables, and causal relations among them, for example, Lizieri and Satchell (1997), and Wang et al. (1997). Few, if any, have ever studied the long-run volatility and volatility patterns over a very long period, and the influence of other economic and financial variables on the volatility in real estate market. An interesting but different kind of study on persistence in real estate is Grenadier (1995), which examines the prolonged cycles in real estate markets.
