Price Discovery and Efficiency in the UK Housing Market

Abstract

In recent years academics have focused their attention on the informational efficiency of the real estate market in the UK. One way of gauging the informational efficiency of a market is to assess the extent to which returns in that market are predictable on the basis of returns in another market. This might be termed the “price discovery” approach to market efficiency. This paper demonstrates that, to a certain extent, returns in the housing market are anticipated by returns to certain securities on the UK stock market up to 2 years in advance. This finding suggests that the UK housing market is not semi-strong form efficient with the implication that there is the potential for sub-optimal allocation of resources in the UK housing market.