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Testing for rational bubbles in the UK housing market

Testing for rational bubbles in the UK housing market
Testing for rational bubbles in the UK housing market
Over the past decade, the UK has witnessed significant booms in the real estate market, and housing prices have experienced increases. Since 1997, the housing price has almost tripled, which is far beyond the long-term trend. To identify the existence of housing bubbles is a crucial issue for any country to prevent possible damage to economies and outbreaks of financial crises. The objective of this paper is to examine the existence of a housing price bubble in the UK through employing a co-explosive vector autoregression (VAR) model, originally applied to stock markets. The results demonstrate that both housing price and rental price show explosive behaviour during their growth, which provides little evidence to support the presence of real estate bubbles in the UK.
Real estate market, Bubbles, Housing price, co-exlosive
0003-6846
1-14
Zhang, Xi
cf867d1b-ba43-4c31-9c21-7730573f8ff6
Kizys, Renatas
9d3a6c5f-075a-44f9-a1de-32315b821978
Floros, Christos
c4c6c62c-8719-4688-b3d2-d46fd01581dc
Gkillas, Konstantinos
2c1e1ebd-73d4-4c74-971c-d642083a9ae6
Wohar, Mark E.
376539ff-8629-4d14-ab76-3d5a08fd7672
Zhang, Xi
cf867d1b-ba43-4c31-9c21-7730573f8ff6
Kizys, Renatas
9d3a6c5f-075a-44f9-a1de-32315b821978
Floros, Christos
c4c6c62c-8719-4688-b3d2-d46fd01581dc
Gkillas, Konstantinos
2c1e1ebd-73d4-4c74-971c-d642083a9ae6
Wohar, Mark E.
376539ff-8629-4d14-ab76-3d5a08fd7672

Zhang, Xi, Kizys, Renatas, Floros, Christos, Gkillas, Konstantinos and Wohar, Mark E. (2020) Testing for rational bubbles in the UK housing market. Applied Economics, 1-14. (doi:10.1080/00036846.2020.1820440).

Record type: Article

Abstract

Over the past decade, the UK has witnessed significant booms in the real estate market, and housing prices have experienced increases. Since 1997, the housing price has almost tripled, which is far beyond the long-term trend. To identify the existence of housing bubbles is a crucial issue for any country to prevent possible damage to economies and outbreaks of financial crises. The objective of this paper is to examine the existence of a housing price bubble in the UK through employing a co-explosive vector autoregression (VAR) model, originally applied to stock markets. The results demonstrate that both housing price and rental price show explosive behaviour during their growth, which provides little evidence to support the presence of real estate bubbles in the UK.

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Accepted/In Press date: 31 August 2020
e-pub ahead of print date: 21 October 2020
Keywords: Real estate market, Bubbles, Housing price, co-exlosive

Identifiers

Local EPrints ID: 445203
URI: http://eprints.soton.ac.uk/id/eprint/445203
ISSN: 0003-6846
PURE UUID: f851654a-e5f2-4613-9e90-ab896b37aee7
ORCID for Renatas Kizys: ORCID iD orcid.org/0000-0001-9104-1809

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Date deposited: 25 Nov 2020 17:30
Last modified: 28 Apr 2022 05:16

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Contributors

Author: Xi Zhang
Author: Renatas Kizys ORCID iD
Author: Christos Floros
Author: Konstantinos Gkillas
Author: Mark E. Wohar

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