Property company performance and real interest rates: a regime-switching approach
Lizieri, C. and Satchell, S., (1996) Property company performance and real interest rates: a regime-switching approach. Working Papers in Land Management & Development. 45/96. Working Paper. University of Reading, Reading. pp16.
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Linear models of property market performance may be misspecified if there exist distinct states where the market drivers behave in different ways. This paper examines the applicability of non-linear regime-based models. A Self Exciting Threshold Autoregressive (SETAR) model is applied to property company share data, using the real rate of interest to define regimes. Distinct regimes appear exhibiting markedly different market behaviour. The model both casts doubt on the specification of conventional linear models and offers the possibility of developing effective trading rules for real estate equities.