Real estate market efficiency: Evidence from Beijing and Shanghai

The price in an efficient market can adjust to new information instantaneously to eliminate any arbitrage opportunities, but such phenomenon is not always observed in real estate market. Using the housing and office market data in Beijing and Shanghai in China, thus paper examines the return and risk characteristics in these markets and tests whether they are efficient or not. It is found that a number of variables, including lagged quarterly and annual excess returns and a measure of the deviation of price from intrinsic value, to some extent, predict future returns. So weak form and semi-strong form efficiency can both be rejected in any of these real estate markets. These empirical findings suggest that real estate markets in Beijing and Shanghai are far away from market efficiency, and there is a slow price adjustment in those markets, which may attribute to the long time of searching and the heavy transaction costs.