Can Anchoring and Loss Aversion Explain the Predictability of Housing Prices?

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalNot applicablepeer-review

1 Scopus Citations
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Author(s)

  • Tin Cheuk Leung
  • Kwok Ping Tsang

Detail(s)

Original languageEnglish
Pages (from-to)41-59
Journal / PublicationPacific Economic Review
Volume18
Issue number1
Publication statusPublished - Feb 2013
Externally publishedYes

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. © 2013 Wiley Publishing Asia Pty Ltd.

Citation Format(s)

Can Anchoring and Loss Aversion Explain the Predictability of Housing Prices? / Leung, Tin Cheuk; Tsang, Kwok Ping.

In: Pacific Economic Review, Vol. 18, No. 1, 02.2013, p. 41-59.

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalNot applicablepeer-review