Are Property Prices Non-Linear? An Investigation of the Behaviour of US REITs and UK Property Company Shares
Abstract
Linear models of market performance may be misspecified if the market
is subdivided into distinct regimes exhibiting different behaviour. Price
movements in the US Real Estate Investment Trusts and UK Property Companies
Markets are explored using a Threshold Autoregressive (TAR) model with
regimes defined by the real rate of interest. In both US and UK markets,
distinctive behaviour emerges, with the TAR model offering better predictive
power than a more conventional linear autoregressive model. The research
points to the possibility of developing trading rules to exploit the systematically
different behaviour across regimes.