Asymmetric response of demand-supply mismatch to investor's sentiment

Book English OPEN
Marcato, Gianluca ; Nanda, Anupam (2012)
  • Publisher: University of Reading

We look through both the demand and supply side information to understand dynamics of price determination in the real estate market and examine how accurately investors’ attitudes predict the market returns and thereby flagging off extent of any demand-supply mismatch. Our hypothesis is based on the possibility that investors’ call for action in terms of their buy/sell decision and adjustment in reservation/offer prices may indicate impending demand-supply imbalances in the market. In the process, we study several real estate sectors to inform our analysis. The timeframe of our analysis (1995-2010) allows us to observe market dynamics over several economic cycles and in various stages of those cycles. Additionally, we also seek to understand how investors’ attitude or the sentiment affects the market activity over the cycles through asymmetric responses. We test our hypothesis variously using a number of measures of market activity and attitude indicators within several model specifications. The empirical models are estimated using Vector Error Correction framework. Our analysis suggests that investors’ attitude exert strong and statistically significant feedback effects in price determination. Moreover, these effects do reveal heterogeneous responses across the real estate sectors. Interestingly, our results indicate the asymmetric responses during boom, normal and recessionary periods. These results are consistent with the theoretical underpinnings.
  • References (13)
    13 references, page 1 of 2

    Acemoglu, D., and A. Scott, “Consumer Confidence and Rational Expectations: Are Agents‟ Beliefs Consistent with the Theory?” Economic Journal 104 (1994), 1-19.

    Baker, K., and D. Saltes, “Architecture Billings as a Leading Indicator of Construction,” Business Economics (2005), October.

    Baker, M., and J. Wurgler, “Investor Sentiment and the Cross-section of Stock Returns”, Journal of Finance 61 (2006), 1645-1680.

    Linden, F., “The Consumer as Forecaster,” The Public Opinion Quarterly, 46:3 (1982), 353-360.

    Ling, D., “A Random Walk Down Main Street: Can Experts Predict Returns on Commercial Real Estate?,” Journal of Real Estate Research, 27:2 (2009), 137-154.

    Ling, D., G. Marcato and P. McAllister, “The Dynamics of Asset Prices, Capital Flows, and Transaction Activity in Illiquid, Informationally Inefficient, Commercial Real Estate Markets,” Journal of Real Estate Finance and Economics 39:3 (2009), 359-383.

    Lizieri C., G. Marcato, P. Ogden and A. Baum: “Pricing Inefficiencies in Private Real Estate Markets Using Total Return Swaps”, Journal of Real Estate Finance and Economics. (2011) DOI: 10.1007/s11146-010-9268-x Malgarini, M., and P. Margani, “Psychology, Consumer Sentiment and Household Expenditures,” Applied Economics 39:13 (2009).

    Mankiw, G., “Hall‟s Consumption Hypothesis and Durable Goods.” Journal of Monetary Economics 10:3 (1982), 417-425.

    Marcato, G. and A. Nanda, “Can Sentiment Surveys Pre-empt Real Estate Market Activities?”, University of Reading Working Papers in Real Estate & Planning 14/11 (2011). Milani, F., “Expectation Shocks and Learning as Drivers of the Business Cycle,” The Economic Journal 121 (2011), 379-401.

  • Metrics
    views in OpenAIRE
    views in local repository
    downloads in local repository

    The information is available from the following content providers:

    From Number Of Views Number Of Downloads
    Central Archive at the University of Reading - IRUS-UK 0 304
Share - Bookmark