1. Testing for the relationship between turnover ratio and price in Taiwan’s real estate market
Chou, Mei-Ling
Assistant Professor
Nanya Institute of Technology
ERES Conference 2010, Milano, Italy

2. Market Stock Flow Turnover ratio A 1,000 10 1% B 100 10%
Background
Object
Conclusion
Application
Data
Turnover ratio=housing flow divided by  housing stock
The same housing flow not means the same supply.
I use the turnover ratio in place the transaction volume (housing flow).
Market
Stock
Flow
Turnover ratio A
1,000 10 1% B
100
10%
Berkovec and Goodman(1996), Hort(2000) found less housing price reduces transaction.
Genesove and Mayer(2001) also found the decreasing housing price would result in the supply and transaction volume decreasing.
In Taiwan, because of the low interest less than 3%, the low real estate tax and low holding cost, the housing price keeps increasing after the first season of 2003.
At the same time, the people real income growth ratio is negative which made the higher housing price become the first of the people’s grievance in 2009.
The residential housing ratio is above 80% and the residential housing owners consider their house not only a consumption good but also a investment good.
Under the condition, the correlation between turnover ratio and price may be different to the foreign researches.

3. Background Object Conclusion Application Data SARS
Summer 2007
U.S. subprime mortgage crisis
R.O.C. Presidential election
SARS
Berkovec and Goodman(1996), Hort(2000) found less housing price reduces transaction.
Genesove and Mayer(2001) also found the decreasing housing price would result in the supply and transaction volume decreasing.
In Taiwan, because of the low interest less than 3%, the low real estate tax and low holding cost, the housing price keeps increasing after the first season of 2003.
At the same time, the people real income growth ratio is negative which made the higher housing price become the first of the people’s grievance in 2009.
The residential housing ratio is above 80% and the residential housing owners consider their house not only a consumption good but also a investment good.
Under the condition, the correlation between turnover ratio and price may be different to the foreign researches.
Global financial crisis

4. To test the stationary of the turnover ratio by unit root test .
Background
Object
Conclusion
Application
Data
To test the stationary of the turnover ratio by unit root test .
To built the VAR (Vector Autoregression) model to evaluate how the turnover ratio influence the housing price.
We use the VAR Granger Causality Tests to test the lead and lag relations of turnover ratio and housing price.
Most housing volume-price relationship researches was used the transaction price and volume to be the important index of the real estate market cycle .
But the supply between different sub-markets aren’t the same which made the transaction volume can not be used in place of the sub-market supply very well.
The turnover ratio is the percent of housing flow divided by the stock which would help us to describe the conditions of every sub-market supply, but most researchers has paid little attention to this.
So, I use the turnover ratio in this paper.
The main objects of this paper: first, second , third…..
We test if the difference of the relation between turnover ratio and housing price in national market and sub-market.

5. Variables Description Type Duration Data source Background Object
Conclusion
Application
Data
Variables
Description
Type
Duration
Data source
TRATIO
turnover ratio of Taiwan
quarterly
2000Q1 to 2009Q4
Ministry of the Interior
TPPRICE
unit price of Taiwan
Cathay Real Estate Index Quarterly Report
DTPPRICE
the logarithm of Taiwan unit price
TCRATIO
turnover ratio of Taipei
TCPPRICE
unit price of Taipei
DTCPPRICE
the logarithm of Taipei unit price

6. the variables are stationary after 1st difference
Background
Object
Conclusion
Application
Data
We can found the variance of turnover ratio and unit price in Taipei is lager than those in Taiwan.
I use the ADF test the stationary of all variables.
All the variables are stationary after 1st difference.
the variables are stationary after 1st difference

7. Background
Object
Conclusion
Application
Data
the Johansen(1991) test with a structural break in short-run dynamics is used to examine the number of common trends in the series.
the turnover ratio and log unit price in Taiwan and in Taipei all have cointegration relation.
The results examine the stability of long-run parameters under unstable short-run parameters.

8. Background
Object
Conclusion
Application
Data
Taiwan
Log unit price(t-1)
Log unit price(t)
Turnover ratio(t-1)
Turnover ratio(t) + —
the error correction model(ECM) is estimated and Granger causality for cross-relationship is defined in the context of the error correction model.
Taipei
Log unit price(t-1)
Turnover ratio(t-1)
Log unit price(t)
Turnover ratio(t) +
Positive effect
Negative effect

9. Taipei: the turnover ratio leads the log unit price two period.
Background
Object
Conclusion
Application
Data
Taiwan: the lead and lag relation of TRATIO and DTPPRICE in Taiwan is not significant.
Taipei: the turnover ratio leads the log unit price two period.

10. Background
Object
Conclusion
Application
Data
The impulse response functions of these spreads and their standard errors are derived to inspect the speed of the market adjustment to a shock.
There has a jump response of log unit price to one S.D innovation of turnover ratio.
The variables are affected by itself.
The response of log unit price to turnover ratio is long-run.
It means if there has a unexpected shock of turnover ratio, the variance of unit price is long-run.
The response of turnover ratio to log unit piece is large, and the marginal response decreased quickly.
It means if there has a unexpected shock of unit price variance, the effect on turnover ratio is large and short-run.
The response of turnover ratio to one S.D. innovation of log unit price is short-run, and the response is larger in Taipei.

11. Background Object Conclusion Application Data
Variance Decomposition of TRATIO
Variance Decomposition of DTPPRICE
PERIOD
S.E.
DTPPRICE
TRATIO 1 2 3 4 5 6 7 8 9 10
The variance of TRATIOt-1 (or DTPPRICEt-1) can explained by itself above 98%.
To have the data of TRATIOt-1 can explain the variance of unit price 31% in 4th period.

12. Background Object Conclusion Application Data
Variance Decomposition of TCRATIO
Variance Decomposition of DTCPPRICE
PERIOD
S.E.
DTCPPRICE
TCRATIO 1 2 3 4 5 6 7 8 9 10
The variance of TCRATIOt-1 (or DTCPPRICEt-1) can explained by itself above 95%.
To have the data of TREATIOt-1 only can explain the variance of unit price 3% in 3rd period.

13. Johansen Cointegration test:
Background
Object
Conclusion
Application
Data
Unit root test:
The turnover ratio and unit price would be stable after a long period.
Johansen Cointegration test:
The turnover ratio and log unit price in Taiwan and in Taipei were stability of long-run parameters under unstable short-run parameters.
Impulse response function:
When a unexpected shock of turnover ratio, the variance of unit price is long-run.
If there has a unexpected shock of unit price variance, the effect on turnover ratio is large and short-run.
To have more information of turnover ratio would be helpful to explain the unit price variance.
The turnover ratio of Taiwan and Taipei are stationary after 1st difference during 2000Q1 to 2009Q4.

14. Thanks for your listening!
The End
Thanks for your listening!