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A Study on the Efficiency of the Housing Market Using the Generalized Spectral Tests

Efficiency of asset market is an important issue for both policy makers and market participants. Housing market in general is expected to be less efficient than the stock market, but the conjecture is not fully supported by hard evidence. This paper empirically examines efficiency of the Korean housing market using the generalized spectral test proposed by Escanciano and Velasco(2006). This approach associates market efficiency with the martingale difference hypothesis. The generalized spectral test is considered as superior method for testing the martingale difference sequence because of its broad applicability and simplicity. In our empirical analyses, we run the test both for the nation and for regional submarkets. Time horizon spans the entire period the data exists, but to account for a potential structural shift, we also separately test the period after the global financial crisis. The test results show that Korean housing market seems inefficient regardless of location and time span.