Explosive Bubbles and Cyclical Linkages of the Asia Pacific Housing Prices

Abstract

This study assesses the housing bubbles and cyclical linkages of housing prices across ten APE, the US and UK from1990Q1-to2013Q4. The sequential unit root tests (SADF and GSADF) have detected multiple and periodically collapsing bubbles for most economies (except Japan and Thailand), which occurred before the Asia Financial Crisis, during the 2000s boom and after the 2008 subprime crisis. Analysis also reveals that APE housing prices are characterized by comparable cyclical pattern and the cycles are closely linked. Domestic markets are vulnerable to regional and global shocks. The finding may contradict the efficient market hypothesis but the real time feature of the bubble tests makes it appealing to policy makers for early detection and correction of market failure. As for stakeholders, new investment strategies are essential in portfolio diversification. Overall, our study offers adequate instruments for future diagnosis of housing prices. The outcome provides fundamental elements of an early warning system against economic instability.