INTERVENTION ANALYSIS OF COOLING MEASURES ON LIQUIDITY IN THE SINGAPORE RESIDENTIAL PROPERTY MARKET

Abstract

This study seeks to investigate the impact of cooling measures on the level of liquidity in the Singapore residential property market. Past literature, such as Clayton, MacKinnon and Peng (2008), and established informative websites like Investopedia.com, have used trading activity as an indicator of the liquidity level in a market. Likewise, the volume of property transactions is used as a measurement of the liquidity level in the Singapore property market in this study. This dissertation also aims to examine the immediate and long-term impacts of the recent eight rounds of cooling measure on the volume of property transactions from 2009 to 2013. Hence, this study’s research is split into two parts to investigate both research problems. A Johansen cointegration test is first performed to observe if there is any long-term cointegrating relationship between the cooling measures and the volume of transactions. An intervention analysis is then conducted to analyse the magnitude and significance of the individual cooling measure’s impact on the volume of transactions, together with an ARIMA regression model and impulse response function (IRF). The private residential property price index and other macroeconomic factors, GDP and CPI, are in the ARIMA model as well.

At 95% confidence level in the Johansen cointegration test, it is found that there is a possibility of a cointegrating relationship between cooling measures and trading volume. This relationship is suggested to be negative from the negative correlation coefficient of cooling measure variable in the ARIMA model. Findings from the intervention analysis tests conducted show a general downward trend for the long-term impacts of these cooling measures while a mix of pattern for their immediate impacts. This result is contrary to existing literature in that market trading activity should have an immediate negative response to cooling measures. The step-by-step implementation of the recent eight cooling measures could account for the difference in short-term and long-term results.