Do real estate investors trade on momentum?

Kuang Kuang Deng, Siu Kei Wong, Ka Shing Cheung and Kwok Sang Tse

The North American Journal of Economics and Finance, 2022, vol. 62, issue C

Abstract: Real estate markets are known to be less-than-efficient for many reasons, but what roles short-term trading plays are unclear. Do short-term investors bring additional risk to the market and cause prices to deviate from fundamental values? Based on an extensive dataset of property transactions and a policy shock that substantially raised the cost of short-term trading in Hong Kong, we estimate ‘real estate risk’ with and without short-term trading based on return predictability, return volatility, and price dispersion. Our results show that as short-term investors exit the market, market returns are less predictable and less volatile, while prices are less dispersed cross-sectionally. Consistent with herding models in behavioral finance, the findings suggest that short-term investors are momentum traders who do not enhance price efficiency.

Keywords: Short-term trading; Transaction tax; Price volatility; Market efficiency (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:62:y:2022:i:c:s1062940822000948

DOI: 10.1016/j.najef.2022.101746

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