Abstract
This paper introduces a State Space approach to explain the dynamics of rent growth, expected returns and Price-Rent ratio in housing markets. According to the present value model, movements in price to rent ratio should be matched by movements in expected returns and expected rent growth. The state space framework assume that both variables follow an autoregressive process of order one. The model is applied to the US and UK housing market, which yields series of the latent variables given the behaviour of the Price-Rent ratio. Resampling techniques and boot-strapped likelihood ratios show that expected returns tend to be highly persistent compared to rent growth. The Öltered expected returns is considered in a simple predictability of excess returns model with high statistical predictability evidenced for the UK. Overall, it is found that the present value model tends to have strong statistical predictability in the UK housing markets.
Original language | English |
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Title of host publication | Nordic Econometric Network |
Publication status | Published - May 2015 |
Event | 8th Nordic Econometric Meeting - University of Helsinki, Arkadiankatu 7 (Economicum Building), Helsinki, Finland Duration: 28 May 2015 → 30 May 2015 http://www.hecer.fi/nem2015 |
Conference
Conference | 8th Nordic Econometric Meeting |
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Abbreviated title | NEM2015 |
Country/Territory | Finland |
City | Helsinki |
Period | 28/05/15 → 30/05/15 |
Internet address |
ASJC Scopus subject areas
- Economics, Econometrics and Finance(all)
- Economics and Econometrics
- Finance