Testing for the relationship between turnover ratio and price in Taiwan ’ s real estate market

Testing for the relationship Testing for the relationship between turnover ratio and between turnover ratio and price in Taiwan’s real estate price in Taiwan’s real estate

marketmarket Chou, Mei-LingChou, Mei-Ling

Assistant ProfessorNanya Institute of Technology

ERES Conference 2010, Milano, Italy

Turnover ratio=housing flow divided by housing Turnover ratio=housing flow divided by housing stockstock

The same housing flow not means the same supply.The same housing flow not means the same supply. I use the turnover ratio in place the transaction I use the turnover ratio in place the transaction

volume (housing flow). volume (housing flow).

Background Object ConclusionApplicationData

Market Market Stock Stock Flow Flow Turnover Turnover ratioratio

AA 1,0001,000 1010 1%1%

BB 100100 1010 10%10%


0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

2000Q1 2001Q1 2002Q1 2003Q1 2004Q1 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1

turn

over

ratio

(%)

0

2

4

6

8

10

12

14

16

18

unit

peric

e(10

thou

sand

dol

lars

/squ

are

met

re)

TAIWAN TURNOVER RATIO TAIPEI TURNOVER RATIO TAIWAN UNIT PRICE TAIPEI UNIT PRICE

SARS

2009.5.20 R.O.C.

Presidential election

Summer 2007U.S. subprime

mortgage crisis

2009.9 Global

financial crisis

To test the stationary of the turnover ratTo test the stationary of the turnover ratio by unit root test .io by unit root test .

To built the VAR (Vector Autoregression) To built the VAR (Vector Autoregression) model to evaluate how the turnover ratimodel to evaluate how the turnover ratio influence the housing price.o influence the housing price.

We use the VAR Granger Causality Tests tWe use the VAR Granger Causality Tests to test the lead and lag relations of turnoo test the lead and lag relations of turnover ratio and housing price. ver ratio and housing price.



VariablesVariables DescriptionDescription TypeType DurationDuration Data sourceData source

TRATIO turnover ratio of Taiwan

quarterlyquarterly 2000Q1 to 2000Q1 to 2009Q42009Q4

Ministry of Ministry of the Interiorthe Interior

TPPRICE unit price of Taiwan


Cathay Real Cathay Real Estate Index Estate Index Quarterly Quarterly ReportReport

DTPPRICEDTPPRICE the logarithm the logarithm of Taiwan unit of Taiwan unit priceprice


TCRATIOTCRATIO turnover ratio of Taipei


Ministry of Ministry of the Interiorthe Interior

TCPPRICETCPPRICE unit price of Taipei


Cathay Real EstCathay Real Estate Index Quartate Index Quarterly Reporterly ReportDTCPPRICEDTCPPRICE the logarithm the logarithm

of of Taipei unit unit priceprice



Table 1: the summary statistics and the results of unit roots test of the data

Var. TRATIO

(%)

TPPRICE

(dollar/m2)

DTPPRICE TCRATIO

(%)

TCPPRICE

(dollar/m2)

DTCPPRICE

Mean 1.2625 5.0030 1.6061 1.6616 12.4248 2.5023

S.D. 0.2122 1.4724 0.0900 2.3416 2.4327 0.1852

Skewness -0.3288 -0.0674 -0.2668 -0.2181 0.7884 0.6934

Kurtosis 1.9247 2.3474 2.6910 2.1325 1.9498 1.8447

LEVEL

ADF Test 0.4814 0.8373 -3.1720 0.3181 1.3088 -2.1223

1st difference

ADF Test -8.0632*** -7.3743*** -8.0498*** -0.6540*** -2.4027*** -2.3827***

the variables are stationary after 1st difference


Table2: the result of Johansen cointegration test

Trace Statistic Max-Eigen Statistic

none 27.15742*** 19.7854*** TAIWAN

at most 1 7.3721 7.3721

none 35.6129** 28.2586** TAIPEI

at most 1 7.3543 7.3543

the Johansen(1991) test with a structural break in short-run dynamics is used to examine the number of common trends in the series.

the turnover ratio and log unit price in Taiwan and in Taipei all have cointegration relation.

The results examine the stability of long-run parameters under unstable short-run parameters.

the error correctithe error correction model(ECM) ion model(ECM) is estimated and s estimated and Granger causalitGranger causality for cross-relatiy for cross-relationship is defined onship is defined in the context of in the context of the error correctithe error correction model. on model.


Taiwan

Log unit price(t-1)

Log unit price(t)

Turnover ratio(t-1)

Turnover ratio(t)

+

—

TaipeiLog unit price(t-1)

Turnover ratio(t-1)

Log unit price(t)

Turnover ratio(t)

+

+

Positive effect

Negative effect

Taiwan: the lead and lag relation of TRATIO Taiwan: the lead and lag relation of TRATIO and DTPPRICE in Taiwan is not significant. and DTPPRICE in Taiwan is not significant.

Taipei: the turnover ratio leads the log unit Taipei: the turnover ratio leads the log unit price two period.price two period.


Table5: VAR Granger Causality Tests

H0 LAG chi-square

TRATIO does not Granger Cause DTPPRICE 1 2.6767 TAIWAN

DTPPRICE does not Granger Cause TRATIO 1 0.0001

TCRATIO does not Granger Cause DTCPPRICE 2 16.5285***

TAIPEI DTCPPRICE does not Granger Cause TCRATIO 2 0.6558

The impulse response functions of these spreads and their The impulse response functions of these spreads and their standard errors are derived to inspect the speed of the market standard errors are derived to inspect the speed of the market adjustment to a shock.adjustment to a shock.


.000

.004

.008

.012

.016

.020

.024

2 4 6 8 10 12 14 16 18 20

DTPPRICE TRATIO

Response of DTPPRICE to CholeskyOne S.D. Innovations

.00

.04

.08

.12

.16

.20

2 4 6 8 10 12 14 16 18 20

DTPPRICE TRATIO

Response of TRATIO to CholeskyOne S.D. Innovations

.00

.01

.02

.03

.04

.05

.06

.07

2 4 6 8 10 12 14 16 18 20

DTCPPRICE TCRATIO

Response of DTCPPRICE to CholeskyOne S.D. Innovations

-.10

-.05

.00

.05

.10

.15

.20

.25

2 4 6 8 10 12 14 16 18 20

DTCPPRICE TCRATIO

Response of TCRATIO to CholeskyOne S.D. Innovations

•There has a jump response of log unit price to one S.D innovation of turnover ratio.

•The response of turnover ratio to one S.D. innovation of log unit price is short-run, and the response is larger in Taipei.


Variance Decomposition of TRATIOVariance Decomposition of TRATIO Variance Decomposition of DTPPRICEVariance Decomposition of DTPPRICE

PERIODPERIOD S.E.S.E. DTPPRICEDTPPRICE TRATIOTRATIO PERIODPERIOD S.E.S.E. DTPPRICE DTPPRICE TRATIOTRATIO

11 0.192280.1922888

2.8290282.829028 97.170997.170977

11 0.016240.0162488

100.0000100.0000 0.0000000.000000

22 0.211100.2111022

2.4664692.466469 97.533597.533533

22 0.023800.0238011

94.7158694.71586 5.2841445.284144

33 0.227310.2273155

2.1276132.127613 97.872397.872399

33 0.030630.0306399

82.0102482.01024 17.9897617.98976

44 0.231520.2315277

2.0716832.071683 97.928397.928322

44 0.038170.0381744

68.9295068.92950 31.0705031.07050

55 0.233620.2336233

2.0750232.075023 97.924997.924988

55 0.045490.0454933

59.6944259.69442 40.3055840.30558

66 0.234370.2343744

2.1150102.115010 97.884997.884999

66 0.052310.0523166

53.3486053.34860 46.6514046.65140

77 0.234860.2348600

2.1732602.173260 97.826797.826744

77 0.058570.0585788

49.0065649.00656 50.9934450.99344

88 0.235200.2352066

2.2429732.242973 97.757097.757033

88 0.064320.0643266

45.9572945.95729 54.0427154.04271

99 0.235520.2355244

2.3173332.317333 97.682697.682677

99 0.069620.0696255

43.7494543.74945 56.2505556.25055

1010 0.235830.2358300

2.3936762.393676 97.606397.606322

1010 0.074550.0745522

42.0955042.09550 57.9045057.90450

•The variance of TRATIOt-1 (or DTPPRICEt-1) can explained by itself above 98%.

•To have the data of TRATIOt-1 can explain the variance of unit price 31% in 4th period.


Variance Decomposition of TCRATIOVariance Decomposition of TCRATIO Variance Decomposition of DTCPPRICEVariance Decomposition of DTCPPRICE

PERIODPERIOD S.E.S.E. DTCPPRICDTCPPRICE E

TCRATIOTCRATIO PERIODPERIOD S.E.S.E. DTCPPRICDTCPPRICE E

TCRATIOTCRATIO

11 0.216030.2160344

5.5058595.505859 94.494194.494144

11 0.024460.0244666

100.0000100.0000 0.0000000.000000

22 0.243180.2431866

25.3690725.36907 74.630974.630933

22 0.045960.0459666

99.2320299.23202 0.7679760.767976

33 0.250200.2502044

28.3527028.35270 71.647371.647300

33 0.067850.0678500

97.4465397.44653 2.5534732.553473

44 0.259320.2593211

28.3954428.39544 71.604571.604566

44 0.089220.0892266

97.2732997.27329 2.7267132.726713

55 0.270730.2707399

34.2910234.29102 65.708965.708988

55 0.108430.1084366

97.5635397.56353 2.4364722.436472

66 0.279080.2790811

38.1599338.15993 61.840061.840077

66 0.124760.1247611

97.8450197.84501 2.1549902.154990

77 0.283860.2838633

40.2225240.22252 59.777459.777488

77 0.138790.1387922

97.9785697.97856 2.0214442.021444

88 0.288350.2883533

41.8728141.87281 58.127158.127199

88 0.151390.1513999

98.0381598.03815 1.9618451.961845

99 0.293610.2936100

43.8424743.84247 56.157556.157533

99 0.163110.1631100

98.0735898.07358 1.9264251.926425

1010 0.299310.2993133

45.8881445.88814 54.111854.111866

1010 0.174090.1740966

98.1113398.11133 1.8886721.888672

•The variance of TCRATIOt-1 (or DTCPPRICEt-1) can explained by itself above 95%.

•To have the data of TREATIOt-1 only can explain the variance of unit price 3% in 3rd period.

Unit root test: Unit root test: The turnover ratio and unit price would be stable afThe turnover ratio and unit price would be stable af

ter a long period. ter a long period. Johansen Cointegration test: Johansen Cointegration test:

The turnover ratio and log unit price in Taiwan and The turnover ratio and log unit price in Taiwan and in Taipei were stability of long-run parameters undin Taipei were stability of long-run parameters under unstable short-run parameters. er unstable short-run parameters.

Impulse response function:Impulse response function: When a unexpected shock of turnover ratio, the varWhen a unexpected shock of turnover ratio, the var

iance of unit price is long-run.iance of unit price is long-run. If there has a unexpected shock of unit price varianIf there has a unexpected shock of unit price varian

ce, the effect on turnover ratio is large and short-ruce, the effect on turnover ratio is large and short-run.n.

To have more information of turnover ratio would To have more information of turnover ratio would be helpful to explain the unit price variance.be helpful to explain the unit price variance.


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Testing for the relationship between turnover ratio and price in Taiwan ’ s real estate market