A Time-Series Intervention Analysis of the Effects of Major Political Incidents, Financial Crises, and Health Hazards (Severe Acute Respiratory Syndrome [SARS]) on Property Prices: A Hong Kong Case Study

Abstract

Shock is defined as a sudden, unexpected and usually unpleasant event or experience. Hong Kong has suffered from several critical shocks over the last two decades. This paper uses an intervention analysis model to examine the impact of four major shocks, namely the announcement of China's decision to take back Hong Kong from Britain in 1982, the Tiananmen Square Incident of 4 June 1989, the Asian Financial Crisis of 1997, and the outbreak of Severe Acute Respiratory Syndrome (SARS) in 2003 on Hong Kong's residential property prices. The main contribution of this study is the use of multiple intervention analysis originated from Box and Tiao (1975) with various dynamic response functions to examine the effects of the four different natures of market events. Using adjusted quarterly data for 1975:1 to 2004:4, the data first are examined for unit roots. The tests reject the presence of seasonal unit roots but confirm the presence of non-seasonal unit roots. The empirical analysis therefore is based on logged first differences of property price index. An ARIMA model is estimated using the pre-intervention data for 1975:1 to 2003:4. This model is re-estimated for 1975:1 to 2003:4 with the intervention terms included.