Working Papers, Hanken School of Economics
No 501:
Modelling and Forecasting Office Returns in the Helsinki Area
Olga Karakozova ()
Abstract: This paper presents an econometric investigation of office
returns determination in the Helsinki area, a small European market, over
the thirty-year period 1971-2001. Particularly, the study investigates the
variation in office capital growth, which is the most volatile component of
office total return in the Helsinki market, by using three alternative
techniques: a regression model, an error correction model (ECM), and an
integrated autoregressive-moving average model with exogenous explanatory
variables (ARIMAX). The study also evaluates the forecasting performance of
the alternative models. The results indicate that the ARIMAX models,
incorporating past values of capital growth and growth in service sector
employment and GDP, are able to pick up shocks, which are present in the
data, and thus provide the best forecasting tool of office returns in
Helsinki. The ECM models, which incorporate long-run information, cannot
satisfactory model the irregularities of the Helsinki office market, such
as the boom-bust cycle of the 1980s-90s, and thus are suitable for
modelling and forecasting only part of the Helsinki market. It is predicted
that office capital returns will continue to grow in real terms by 0.4% on
average in the period 2002-2005. This implies that real office total
returns will grow on average at the rate of 6% over the same time
period.
Keywords: office returns; econometric modelling; forecasting; Finland; (follow links to similar papers)
29 pages, December 31, 2003
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