Abstract
The role of liquidity in asset pricing model has attracted much attention in recent financial literature. However there is a paucity of studies on liquidity and asset pricing in the real estate market. It is expected that as the housing market is less liquid than the stock market, it should incur more significant illiquid effects. Motivated by such intuition, this paper carries out an asset pricing analysis that investigates the role of liquidity risk in explaining cross-sectional housing returns. Using a unique database of 55 popular housing estates, the study reveals that housing estates with a high sensitivity to market liquidity command a higher risk premium. Such positive relationship between expected return and liquidity beta is proved robust under different model specifications. The findings of this study not only shed new light on the positive price-volume correlation and the cross-sectional liquidity-return relationship in the financial literature, but also provide useful implications for real estate investment. © 2015 Elsevier Ltd.
| Original language | English |
|---|---|
| Pages (from-to) | 426-434 |
| Journal | Habitat International |
| Volume | 49 |
| DOIs | |
| Publication status | Published - 1 Oct 2015 |
| Externally published | Yes |
Bibliographical note
Publication details (e.g. title, author(s), publication statuses and dates) are captured on an “AS IS” and “AS AVAILABLE” basis at the time of record harvesting from the data source. Suggestions for further amendments or supplementary information can be sent to [email protected].Research Keywords
- Asset pricing test
- Hong Kong housing market
- Housing return
- Liquidity risk
