Humboldt-Universität zu Berlin - High Dimensional Nonstationary Time Series


Variable selection and direction estimation for single-index models via DC-TGDR method

Honglin Wang
Fan Yu
Yinggang Zhou

The conventional wisdom that housing prices are the present value of future
rents ignores the fact that unlike dividends on stocks, rent is not discretionary.
Housing price uncertainty can affect household property investments, which
in turn affect rent. By extending the theory of investment under uncertainty, we
model the renter’s decision to buy a house and the landlord’s decision to sell
as the exercising of real options of waiting and examine real options effects on
rent. Using data from Hong Kong and mainland China, we find a significant
effect of housing price on rent and draw important policy implications.


JEL Classification: