Analysis of Momentum Effects in the Seoul Apartment Market

This study analyzes momentum effects in the indices of apartment sale prices for 25 districts in Seoul with momentum investment strategies from Jegadeesh and Titman. The analysis employs housing price trend data from the Korea Real Estate Board and Kookmin Bank. To reflect the long-term characteristics of the real estate market, the study sets the portfolio formation period (J) and the holding period (K) as 3, 6, 9, 12, 24, 36 and 60 months. The results show a significant momentum effect in the short term, but the effect either fades or reverses over the long term. With the capital asset pricing model (CAPM) model to verify whether the short-term momentum effect results from systematic risk or market inefficiency, the study finds conflicting conclusions depending on two data. Nevertheless, they suggest market inefficiency as the alpha for the winner portfolio is positive, while the alpha for the loser portfolio is negative. Since the indices of apartment sale prices may not fully reflect actual price changes, the actual momentum effect could be stronger. However, practical limitations such as capital gains tax and brokerage fee may constrain the implementation of short-term momentum strategies.