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Testing for real estate bubbles

Author

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  • Eric Girardin

    (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)

  • Roseline Joyeux

    (Macquarie University)

Abstract

This chapter provides a review of the recent literature on bubble testing in real estate markets. Starting from a theoretical overview of the specificities of real estate assets we assess the latest econometric methodology to detect the periods when a real estate bubble is present. In an illustration for the case of Japan's house prices over four decades, we focus on a two-step econometric strategy to first filter out the fundamental component in the price-to-rent ratio and then test for the possible explosive character of the, non-fundamental, residual. Such a strategy enables researchers both to avoid misleading signals about spurious bubbles, and to detect bubbles which may be hidden when focusing only on the price-to-rent ratio.

Suggested Citation

  • Eric Girardin & Roseline Joyeux, 2022. "Testing for real estate bubbles," Post-Print hal-03990942, HAL.
    • Handle: RePEc:hal:journl:hal-03990942
    DOI: 10.4337/9781789908497.00013
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