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Testing for Bubbles in the Colombian Housing Market: A New Approach

Author

Listed:
  • José E. Gómez-González
  • Jair N. Ojeda-Joya
  • Catalina Rey-Guerra
  • Natalia Sicard

Abstract

In the context of financial crises influenced by the development and burst of housing price bubbles, the detection of exuberant behaviors in the financial market and the implementation of early warning diagnosis tests are of vital importance. This paper applies the bubble-detection methodology developed by Phillips, Shi and Yu (2012) to the most important Colombian residential property market. The empirical results suggest that this housing market experienced a price bubble that began in the second half of 2012. This result holds true under alternative robustness checks, namely alternative price deflators, regression windows and price segments. The only exception is in the case of the low-price segment of the housing market where prices have not increased recently. Bubble episodes, under this approach, consist of periods of explosive behavior of the nominal asset price which are not explained by the evolution of its market returns.

Suggested Citation

  • José E. Gómez-González & Jair N. Ojeda-Joya & Catalina Rey-Guerra & Natalia Sicard, 2015. "Testing for Bubbles in the Colombian Housing Market: A New Approach," Revista Desarrollo y Sociedad, Universidad de los Andes,Facultad de Economía, CEDE, August.
    • Handle: RePEc:col:000090:013542
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    References listed on IDEAS

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    1. Peter C. B. Phillips & Shu-Ping Shi & Jun Yu, 2011. "Testing for Multiple Bubbles," Working Papers CoFie-03-2011, Singapore Management University, Sim Kee Boon Institute for Financial Economics.
    2. Peter C. B. Phillips & Yangru Wu & Jun Yu, 2011. "EXPLOSIVE BEHAVIOR IN THE 1990s NASDAQ: WHEN DID EXUBERANCE ESCALATE ASSET VALUES?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(1), pages 201-226, February.
    3. Diba, Behzad T & Grossman, Herschel I, 1988. "Explosive Rational Bubbles in Stock Prices?," American Economic Review, American Economic Association, vol. 78(3), pages 520-530, June.
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    5. Bala Arshanapalli & William Nelson, 2008. "A Cointegration Test To Verify The Housing Bubble," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 2(2), pages 35-43.
    6. Evans, George W, 1991. "Pitfalls in Testing for Explosive Bubbles in Asset Prices," American Economic Review, American Economic Association, vol. 81(4), pages 922-930, September.
    7. Natalia Salazar & Roberto Steiner & Alejandro Becerra & Jaime Ramírez, 2013. "Los efectos del precio del suelo sobre el precio de la vivienda para Colombia," Revista ESPE - Ensayos Sobre Política Económica, Banco de la República, vol. 31(70), pages 18-66, July.
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    Cited by:

    1. Jean-Louis Bago & Koffi Akakpo & Imad Rherrad & Ernest Ouédraogo, 2021. "Volatility Spillover and International Contagion of Housing Bubbles," JRFM, MDPI, vol. 14(7), pages 1-14, June.
    2. Amador-Torres, Juan S. & Gomez-Gonzalez, Jose Eduardo & Ojeda-Joya, Jair N. & Jaulin-Mendez, Oscar F. & Tenjo-Galarza, Fernando, 2016. "Mind the gap: Computing finance-neutral output gaps in Latin-American economies," Economic Systems, Elsevier, vol. 40(3), pages 444-452.
    3. Jose Eduardo Gomez-Gonzalez & Juliana Gamboa-Arbeláez & Jorge Hirs-Garzón & Andrés Pinchao-Rosero, 2018. "When Bubble Meets Bubble: Contagion in OECD Countries," The Journal of Real Estate Finance and Economics, Springer, vol. 56(4), pages 546-566, May.
    4. Xie, Zixiong & Chen, Shyh-Wei & Wu, An-Chi, 2019. "Asymmetric adjustment, non-linearity and housing price bubbles: New international evidence," The North American Journal of Economics and Finance, Elsevier, vol. 50(C).

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    More about this item

    Keywords

    Housing-price bubbles; unit-root tests; asset pricing; Colombia;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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