| ID | 119204 |
| Title Proper | Anchoring and loss aversion in the housing market |
| Other Title Information | implications on price dynamics |
| Language | ENG |
| Author | Leung, Tin Cheuk ; Tsang, Kwok Ping |
| Publication | 2013. |
| Summary / Abstract (Note) | In this paper we develop a simple model with anchoring and loss aversion to explain house price dynamics. The model has two testable implications: 1) when both cognitive biases are present, price dispersion and trade volume are pro-cyclical; 2) if anchoring decreases with time, then price dispersion and trade volume are higher for transactions with a previous purchase that is more recent. Using a data set that contains most real estate transactions in Hong Kong from 1992 to 2006, we find anchoring and loss aversion to be important, and the results are robust to type of housing and sample period. The finding is consistent with the strong correlations among house price, price dispersion, and volume found in the data. Moreover, anchoring, price dispersion and volume decrease with time since previous transaction. Our results suggest that anchoring and loss aversion contribute to the cyclicality of the housing market. |
| `In' analytical Note | China Economic Review Vol. 24, No.1; Mar 2013: p.42-54 |
| Journal Source | China Economic Review Vol. 24, No.1; Mar 2013: p.42-54 |
| Key Words | Price Dispersion ; Anchoring ; Loss Aversion ; Housing Market |