Time Variation of Liquidity in the Private Real Estate Market: An Empirical Investigation

Jim Clayton (), Greg MacKinnon () and Liang Peng ()
Additional contact information
Jim Clayton: University of Cincinnati Hartford, CT 06103
Greg MacKinnon: Saint Mary’s University Halifax, Nova Scotia B3H 3C3
Liang Peng: University of Colorado Boulder, Colorado 80309-0419

Journal of Real Estate Research, 2008, vol. 30, issue 2, pages 125-160

Abstract: This paper characterizes the behavior of and evaluates competing explanations for time variation in private real estate market liquidity documented in Fisher et al. (2003). In the first, sellers base their estimates of value on observations of signals from the market, but the presence of noise means a change in signal is not fully reflected in sellers?updated value estimates. The second incorporates the option value of waiting, or opportunity cost of not transacting, recently introduced by Krainer (2001) and Novy-Marx (2004), into seller’s optimal valuation strategy. In the third, we allow for the possibility of investors who are not fully rational in the sense that they trade on market sentiment and we link market-wide liquidity to investor sentiment with higher liquidity being due to the presence of irrationally over-optimistic traders. In this model measures of aggregate liquidity act as an indicator of the relative presence (or absence) of sentiment-based traders in the market place and therefore the divergence of asset price from fundamental value. Empirical findings are generally consistent with models of optimal valuation with rational updating and provide support for the opportunity cost approach.

JEL-codes: L85 (search for similar items in EconPapers)
Date: 2008
View list of references View citations in EconPapers

Downloads: (external link)
http://aux.zicklin.baruch.cuny.edu/jrer/papers/pdf/past/vol30n02/01.125_160.pdf Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:jre:issued:v:30:n:2:2008:p:125-160

Ordering information: This journal article can be ordered from
Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323
http://aux.zicklin.b ... u/jrer/about/get.htm

Access Statistics for this article

Journal of Real Estate Research is edited by Dr. Ko Wang

More articles in Journal of Real Estate Research from American Real Estate Society
Address: American Real Estate Society Clemson University School of Business & Behavioral Science Department of Finance 401 Sirrine Hall Clemson, SC 29634-1323
Series data maintained by JRER Graduate Assistant/Webmaster ().