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- Title
Can Anchoring and Loss Aversion Explain the Predictability of Housing Prices?
- Authors
Leung, Tin Cheuk; Tsang, Kwok Ping
- Abstract
We offer an explanation of why changes in house price are predictable. We consider a housing market with loss-averse sellers and anchoring buyers in a dynamic setting. We show that when both cognitive biases are present, changes in house prices are predicted by price dispersion and trade volume. Using a sample of housing transactions in Hong Kong from 1992 to 2006, we find that price dispersion and transaction volume are, indeed, powerful predictors of housing return. For both in and out of sample, the two variables predict as well as conventional predictors such as the real interest rate and real stock return.
- Subjects
LOSS aversion; HOME prices; PURCHASING agents; INTEREST rates; RATE of return; PREDICTION models
- Publication
Pacific Economic Review, 2013, Vol 18, Issue 1, p41
- ISSN
1361-374X
- Publication type
Article
- DOI
10.1111/1468-0106.12009