Shah, Zahra B.2010-04-152010-04-152010-03Balcilar, M, Gupta, R & Shah, Z 2010, 'An in-sample and out-of-sample empirical investigation of the nonlinearity in house prices of South Africa', University of Pretoria, Department of Economics, Working paper series, no. 2010-08. [http://web.up.ac.za/default.asp?ipkCategoryID=736&sub=1&parentid=677&subid=729&ipklookid=3]http://hdl.handle.net/2263/13968This paper first tests if housing prices in the five segments of the South African housing market, namely, large-middle, medium-middle, small-middle, luxury and affordable, exhibits non-linearity based on smooth transition autoregressive (STAR) models estimated using quarterly data covering the period of 1970:Q2 to 2009:Q3. We find overwhelming evidence of non-linearity in these five segments based on in-sample evaluation of the linear and non-linear models. We then provide further support for non-linearity by comparing one- to four-quarters-ahead out-of-sample forecasts of the non-linear time series model with those of the classical and Bayesian versions of the linear autoregressive (AR) models for each of these segments, over an out-of-sample horizon of 2001:Q1 to 2009:Q3, using an in-sample period from 1970:Q2 to 2000:Q4. Our results indicate that barring the one-, two and four-step(s)-ahead forecasts of the small-middle-segment the non-linear model always outperforms the linear models.enUniversity of Pretoria, Department of EconomicsBayesian autoregressive modelsHousing marketSmooth transition autoregressive (STAR) modelsForecast accuracyLinear autoregressive (AR) modelsHousing -- Prices -- South AfricaLinear models (Statistics)Working Paper