Speaker：Rose Lai
Date: April 7, 2017
Time:13:30-14:45
Venue: Room 106B, Zhonghui Building
Sponsor: The Institute for Economic and Social Research (IESR)

Speaker:
Rose Neng LAI is Professor of Finance in the Department of Finance and Business Economics of the Faculty of Business Administration of the University of Macau. She is also the Associate Dean (Research and Development) of the Faculty since 2008, and a member of the University Council of the University of Macau. She earned her MBA from the Simon Fraser University, Canada, and her PhD in Finance from the Chinese University of Hong Kong, Hong Kong SAR. Her research in real estate finance and economics, behavioral finance, and risk management has been published in the Real Estate Economics, the Journal of Real Estate Finance and Economics, the Journal of Empirical Finance and others. She is currently the Executive Editor of the International Real Estate Review.

Abstract:
This paper compares the evolution of property values in the U.S. and China across cities and time using simple, side-by-side models to compare long run levels and short run dynamics. Although the time period allowed for our analysis is short, we view the results as essentially descriptive, but applied to important time periods. We use (Pooled) Mean Group estimation to analyze house prices in cities in China from 2009-2016 and the U.S. from 1999-2016, including sub-periods. We define the “fundamentals” of housing prices with the Gordon dividend discount model, and use lagged rents, prices, real, nominal interest rates, as short term explanatory factors in both countries. We also consider differences over sub-periods and by city types. We find some similarities between the countries in terms of long run fundamentals, but major differences in adjustment. In particular, we find that the U.S. has had adjustment that was relatively slow and prone to “bubbles” in the sense of strong momentum. On the other hand, China has had relatively quick adjustment back to long run fundamentals and nothing like momentum. In short, our results suggest that the U.S. house prices have tended to chase past house prices; whereas that in China have tended to chase rents. This does not mean that China properties are less risky. We find important differences between major cities and smaller ones, especially in China.