Delink between Trading Volume and Transaction Price of Housing in Hong Kong

A strong co-movement of trading volume and transaction price in financial markets is commonly recognized, as Fisher et al. (2003) argued that “liquidity is typically greater when the market is up (asset prices are relatively high and/or are rising), and vice versa.” Empirical evidence in financial markets have been reviewed in Karpoff (1987) and Moosa and Silvapulle (2000).

However, the co-movement exists only when the market is free from government interventions, as the price-volume relationship is due to free market channels as raised in the following four major theories, viz. Wheaton’s (1990) supply-reduction model, Stein’s (1995) credit-constraint model, Berkovec and Goodman’s (1996) search model and Genesove and Mayer’s (1997) loss-aversion model.

Wheaton (1990) argued that a higher rate of successful matching between buyers and sellers (increasing trading volume) would reduce the supply of units for sale, which in turn would increase sellers’ reservation price (increasing price). Stein (1995) contended that the distinctive requirement of downpayment in property markets results in a positive relationship. On the other hand, Berkovec and Goodman’s (1996) search model suggested a positive relationship by means of information friction. More recently, Genesove and Mayer (2001) tested their loss-aversion model by the prospect theory of Tversky and Kahneman (1991) and argued that because of the loss-aversion behavior of sellers, a positive relationship is resulted. Recent developments of these four models are reviewed by Clayton et al. (2008), where they found empirical support on Wheaton’s and Stein’s models, by a bivariate VAR model on housing panel data of the 114 MSAs in the USA. Furthermore, Fisher et al. (2004) examined the correlation of the frequency of sale with property- and owner-specific characteristics, including property price. A positive relationship between property return and the probability of sale was found.

Since there have been several rounds of imposing stamp duties on housing transactions since 2010 as anti-speculative measures, these unconventional government interventions have imposed new constraints on the housing market of Hong Kong. It provides a good opportunity for testing whether government interventions would delink the co-movement of trading volume and transaction price.

Figure 1 below shows the time series of trading volume (number of transactions) of the secondary housing market (existing housing units), and the yoy change of the transaction price index of private housing, from 2003 to 2018 (Nov). They show a strong co-movement before 2011, but weaker relationship afterwards. (The reasons why excluding primary housing market transactions are as follows: 1. HPI is estimated based on transactions in the secondary housing market; and 2. Quantity of housing units supplied in the primary housing market is highly restricted by the government’s pre-sale approval process and the marketing strategy of developers.)

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Figure 1 Time series of Trading Volume of the Secondary Housing Market (Number of Transactions, NOT2) —blue line, left axis; and the yoy change of Transaction Housing Price (HPIyoy) — red line, right axis (Sources of data: NOT2 from Land Registry, HPI from Rating and Valuation Department)

Figure 2 shows a newspaper report on the timeline of imposing various anti-speculative stamp duty measures. The market participants commonly refer them as SSD, BSD, and DSD. The Special Stamp Duty (SSD) has been started since Nov. 2010, which restricted sellers from selling their housing units and thus reducing housing supply and resulting in even higher housing price. Then, the SDS was extended to 3-year in Oct. 2012, and a new stamp duty Buyer’s Stamp Duty (BSD) was also imposed. Four months later, a Double Stamp Duty (DSD) has been imposed since Feb. 2013. Yet, as housing price was still escalating even with all these measures, all DSDs were increased to 15% in Nov. 2016.

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Figure 2 The imposition of Special Stamp Duty, Buyer’s Stamp Duty and Double Stamp Duty on Housing Transactions in Hong Kong. Source: SCMP (2016) Hong Kong raises stamp duty to tame surging home prices in the world’s least affordable city, Nov 4.

Sarcastically, after imposing all these so-called anti-speculative measures, housing price of Hong Kong has been going up in general within the period. However, the trading volume has plummeted since 2011, as shown in Figure 1. The average trading volume from Jan. 2003 to Jun. 2011 was 7,203; but the average trading volume from Jul. 2011 to Nov. 2018 was only 3,809. It is almost a 50% drop in the average trading volume before and after the anti-speculative stamp duty measures.


Berkovec, J. and Goodman, J. (1996) Turnover as a Measure of Demand for Existing Homes, Real Estate Economics, 24, 421–440.

Clayton, J., Miller, N. and Peng, L. (2010) Price-volume correlation in the housing market: causality and Co-movements, Journal of Real Estate Finance and Economics 40(1), 14–40.

Fisher, J., Gatzlaff, D., Geltner, D. and Haurin, D. (2003) Controlling for the Impact of Variable Liquidity in Commercial Real Estate Price Indices, Real Estate Economics 31(1), 269–303.

Fisher, J., Gatzlaff, D., Geltner, D. and Haurin, D. (2004) An Analysis of the Determinants of Transaction Frequency of Institutional Commercial Real Estate Investment Property. Real Estate Economics 32(2), 239–264.

Genesove, D. and Mayer, C. (2001) Loss Aversion and Seller Behavior: Evidence from the Housing Market, NBER Working Paper No. 8143.

Karpoff, J.M. (1987) The Relation between Price Changes and Trading Volume: A Survey. Journal of Financial and Quantitative Analysis 22(1), 109–126.

Leung, C.K.Y., Cheung, P.W.Y. and Tang, E.C.H. (2013) Financial Crisis and the Co-movements of Housing Sub-markets: Do relationships change after a crisis? International Real Estate Review 16(1), 68–118.

Moosa, I. and Silvapulle, P. (2000) The price-volume relationship in the crude oil futures market, some results based on linear and nonlinear causality testing, International Review of Economics and Finance 9(1), 11–30.

SCMP (2016) Hong Kong raises stamp duty to tame surging home prices in the world’s least affordable city, Nov 4.

Stein, J. (1995) Prices and Trading Volume in the Housing Market: A Model with Downpayment Effects. Quarterly Journal of Economics 110, 379–405.

Wheaton, W. (1990) Vacancy, search, and prices in a housing market matching model,” The Journal of Political Economy, 98(6), 1270–1292.

ecyY is the Founder of Real Estate Development and Building Research & Information Centre REDBRIC

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