Liquidity risk and cross-sectional return in the housing market

Xian Zheng, K. W. Chau, Chi Man Hui

Research output: Journal article publicationJournal articleAcademic researchpeer-review

18 Citations (Scopus)


The role of liquidity in asset pricing model has attracted much attention in recent financial literature. However there is a paucity of studies on liquidity and asset pricing in the real estate market. It is expected that as the housing market is less liquid than the stock market, it should incur more significant illiquid effects. Motivated by such intuition, this paper carries out an asset pricing analysis that investigates the role of liquidity risk in explaining cross-sectional housing returns. Using a unique database of 55 popular housing estates, the study reveals that housing estates with a high sensitivity to market liquidity command a higher risk premium. Such positive relationship between expected return and liquidity beta is proved robust under different model specifications. The findings of this study not only shed new light on the positive price-volume correlation and the cross-sectional liquidity-return relationship in the financial literature, but also provide useful implications for real estate investment.
Original languageEnglish
Pages (from-to)426-434
Number of pages9
JournalHabitat International
Publication statusPublished - 1 Oct 2015


  • Asset pricing test
  • Hong Kong housing market
  • Housing return
  • Liquidity risk

ASJC Scopus subject areas

  • Urban Studies


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