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The probability and timing of price reversals in the property market

Author

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  • Graham Partington

    (University of Technology Sydney, Lindfield, NSW, Australia)

  • Max Stevenson

    (University of Technology Sydney, Lindfield, NSW, Australia)

Abstract

In this paper, we develop models for estimating the time varying probability that there will be a price reversal in the property market. Knowledge of such price reversals may be helpful in forming property trading strategies, and providing confirming evidence of turning points in property cycles. Using an index from the UK property market, we obtain the time varying probabilities by estimating state transition rates. State transition rates are estimated for cases where the up-state (a run of positive price changes) switches to the down-state (price falls) and vice versa. We also estimate a model for absolute transitions, where we take no account of the direction of the state transition. The predictive power of our models is assessed using data from a holdout period. We find that the absolute transition model performs worse than separate state transition models for the up-state and the down-state. For these latter models, the more rapid the decline in the forecast probability of a run continuing beyond a certain time, the less likely it is that the run will actually continue. Further, the probability profiles provide a perfect rank ordering of the length of runs in the holdout period. This suggests that the probabilities could be used to predict whether a sequence of price rises or falls will be long- or short-lived. Copyright © 2001 John Wiley & Sons, Ltd.

Suggested Citation

  • Graham Partington & Max Stevenson, 2001. "The probability and timing of price reversals in the property market," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 22(7), pages 389-398.
    • Handle: RePEc:wly:mgtdec:v:22:y:2001:i:7:p:389-398
    DOI: 10.1002/mde.1028
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    References listed on IDEAS

    as
    1. Colin Lizieri & Stephen Satchell, 1997. "Property company performance and real interest rates: a regime-switching approach," Journal of Property Research, Taylor & Francis Journals, vol. 14(2), pages 85-97, January.
    2. R Barras & D Ferguson, 1985. "A Spectral Analysis of Building Cycles in Britain," Environment and Planning A, , vol. 17(10), pages 1369-1391, October.
    3. Grenadier, Steven R, 1995. "The Persistence of Real Estate Cycles," The Journal of Real Estate Finance and Economics, Springer, vol. 10(2), pages 95-119, March.
    4. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
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    Cited by:

    1. Juan Yao & Graham Partington & Max Stevenson, 2013. "Predicting the directional change in consumer sentiment," Australian Journal of Management, Australian School of Business, vol. 38(1), pages 67-80, April.
    2. Juan Yao & Graham Partington & Max Stevenson, 2005. "Run length and the predictability of stock price reversals," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 45(4), pages 653-671, December.
    3. Huong Dang & Graham Partington, 2014. "Rating Migrations: The Effect of History and Time," Abacus, Accounting Foundation, University of Sydney, vol. 50(2), pages 174-202, June.

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