Dynamics of Urban Residential Property Prices -- A Case Study of the Manhattan Market.

The dynamics of house pricing has been of constant interest in real estate literature. Significant effort has been devoted to testing the efficiency of the housing market. Three types of efficiency based on the information content have been defined. What is relevant to this article is the weak efficiency. In a weakly efficient market, the excess return is zero when past prices and returns are available. Previous research, in general, rejected the weakly efficient hypothesis. Both house prices and excess returns exhibit serial correlation, which makes it possible to predict future prices and excess returns using historical prices and returns. In this paper, the factors that have an impact on the weak efficiency have also been studied. Instead of directly modeling those factors, a special market for the study has been chosen. This market lacks some of the attributes that were cited by researchers in explaining market inefficiency. The logic behind the methodology is that, if the weakly efficient hypothesis is rejected in this market, then attributes that have been cited in previous studies but do not present in this market may not be as important as those presented in this market.