Speculation and property price: chicken and egg paradox

The positive correlation between speculative activity and property price movements has confused many researchers and policy makers. This paper attempts to establish the direction of causal relationship between the two variables using the cointegration approach, error correction model, and the Granger-causation test. Empirical evidence shows that speculative activity and property price are random walks and cointegrated. Most importantly, results indicate that property price movement Granger-causes speculative activity, but not the reverse. Rather unexpected is that the sale of discounted public for-sale housing (home ownership scheme—HOS) has positive impact on property price, which may contradict to the objective of the programme.