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Testing Long Memory in the Presence of Structural Breaks: An Application to Regional and National Housing Markets

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Abstract

We use parametric and semi-parametric methods to explore the effects of structural breaks on long memory processes in nine US regional and national housing prices over the period from January 1991 to February 2014. The results reveal multiple structural breaks and differential break points across regions. The regional break points do not coincide with the national break suggesting a spatial pattern of the underlying determinants of regional housing prices. We find long memory in regional housing prices using the entire sample period, but the results are generally reversed in sub-samples (regimes) that incorporate structural breaks. Our evidence suggests that failure to account for structural breaks when testing for long memory can lead to incorrect inferences. The results, which proved robust to model specifications, have important implications for policy prescriptions, for market efficiency, and for the integration of regional housing markets.

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Notes

  1. However, several studies yield mixed results on the efficiency of the housing market. See, for example, Case and Shiller (1989), Clapp and Tirtiroglu (1994), Gatzlaff and Tirtiroglu (1995), and Cho (1996).

  2. Similar surgical programs are used in the UK in the context of housing market renewals (HMR).

  3. See, for example, Pollahowski and Ray (1997), Clark and Coggin (2009), Zohrabyan et al. (2008), and Payne (2012).

  4. Beran (1994) demonstrates that asymptotically, matrix K is the inverse of ∑  N .

  5. Table 5 below presents estimates from the EMLE method. Results from the AMLE are qualitatively similar and are thus not reported here to conserve on space, but are available upon request.

  6. See Ewing and Malik (2010) and Lamoureux and Lastrapes (1990), among others.

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Authors and Affiliations

  1. Stetson School of Business and Economics, Mercer University, 1400 Coleman Avenue, Macon, GA, 31207, USA

    Geoffrey M. Ngene

  2. Stetson School of Business and Economics, Mercer University, 1400 Coleman Avenue, Macon, GA, 31207, USA

    Charles A. Lambert

  3. Department of Economics and Finance, College of Business, Louisiana Tech University, Ruston, LA, 71272, USA

    Ali F. Darrat

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  1. Geoffrey M. Ngene
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  2. Charles A. Lambert
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  3. Ali F. Darrat
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Correspondence to Geoffrey M. Ngene.

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Ngene, G.M., Lambert, C.A. & Darrat, A.F. Testing Long Memory in the Presence of Structural Breaks: An Application to Regional and National Housing Markets. J Real Estate Finan Econ 50, 465–483 (2015). https://doi.org/10.1007/s11146-014-9483-y

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