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Business Cycle and Secotr Rotation Strategies in Korean Regional Housing Market

  • Korea Real Estate Review
  • 2012, 22(2), pp.149-170
  • Publisher : korea real estate research institute
  • Research Area : Social Science > Law > Law of Special Parts > Law of Real Estate

Chang-Rae Park 1,  Chul Sohn 1

1강릉원주대학교

Accredited

ABSTRACT

Business cycle can be divided into two phases – expansion and recession. Business cycle can be further divided into five stages – early expansion[stage I], middle expansion[stage II], late expansion[stage III], early recession[stage IV], and late recession[stage V]. In this paper, we investigated the housing price returns of selected regional housing markets in Koreas across the five business cycle stages. First, we reviewed whether the house price returns differed across the five business cycle stage. Second, we analyzed the risk and return relationship based on single factor model across the business stages. Third, we analyzed the differences of risk adjusted performance measures (excess market return and Jensen’s alpha) across the business cycle stages. To conduct the analyses, we used the Korea Kukmin Bank’s housing purchase price composite indices for the calculating housing price returns and the KOSIS(Korean statistical information service) business phase table for defining the business cycle stages from January 1986 to December 2011. The major results from this study can be summarized as follows. First, there existed differences in returns of the regional housing markets across the different business cycle stages. Second, there are stable risk-return relationships in Korea regional housing markets. Third, the risk adjusted performance measured by market adjusted return and Jensen’s alpha differed across the business cycle stages. In sum, these results show that the housing returns in regions of Korea differed across the different business cycle stages. This implies that it’s possible to use the sector rotation strategy for real estate investment in Korea.

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