Isolating important driving forces in indirect real estate markets

Abstract

Isolating the important driving factors in property markets is of continuing interest to both property analysts and fund managers. Ascertaining permanent driving factors may be of interest to strategic asset allocation while transitory factors may be of interest in the development of tactical asset allocation models. This study uses established methodologies to decompose driving factors affecting indirect property markets in Australia into their permanent and transitory components, paying attention to the impact of structural breaks. Various restrictions on the long-run cointegration matrix are also applied to identify those variables that may be considered drivers of property markets.