Does Property Transaction Matter in the Price Discovery of Real Estate Markets?

William Mingyan Cheung, James Chicheong Lei, Desmond Tsang

Research output: Contribution to journalArticlepeer-review


This study examines whether property transaction affects the price discovery process in real estate markets. Prior literature shows that price discovery generally first takes place in the securitized public real estate investment trust (REIT) market. We conjecture that property transaction provides novel information to the direct real estate market and can change the dynamics between public and private real estate returns. We employ a unique dataset of property transactions to construct “transaction windows” and specifically examine the causality between public and private real estate markets around these periods. We form firm-level pairs of public and private price series, and estimate the normalized common factor loadings per Gonzalo and Granger (1995) by using a vector error-correction model. Our findings show that a significant proportion of price discovery happens in the private market instead of the public REIT market. Our results are robust to investments of different property types and different lengths of transaction windows. Overall, the findings in this study imply that property acquisition and disposition provide crucial information to the private real estate market and induce a reverse causality between the public and private markets.

Original languageEnglish
Pages (from-to)27-49
Number of pages23
JournalInternational Real Estate Review
Issue number1
Publication statusPublished - 2016 Mar 1
Externally publishedYes


  • Direct Real Estate
  • Price Discovery
  • REIT
  • VECM

ASJC Scopus subject areas

  • Demography
  • Geography, Planning and Development
  • Accounting
  • Finance
  • Urban Studies
  • Economics and Econometrics


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