What Causes the Positive Price-Turnover Correlation in European Housing Markets?
Martijn Dröes () and
Marc K. Francke
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Marc K. Francke: University of Amsterdam
The Journal of Real Estate Finance and Economics, 2018, vol. 57, issue 4, 618-646
Abstract This paper examines what determines the correlation between prices and turnover in European housing markets. Using a panel vector autoregressive model, we find that there is a particularly strong feedback mechanism between prices and turnover. Momentum effects are another important reason why prices and turnover are correlated. Common underlying factors, such as GDP and interest rates, also explain part of the price-turnover correlation. The results in this paper imply that, to understand price and turnover dynamics, it is important to model prices and turnover as two interdependent processes. There is a considerable bias in the coefficient estimates of standard house price models if this dependency is not explicitly taken into account.
Keywords: Price-turnover relationship; Feedback; Momentum effects; Credit constraints; Nominal loss aversion (search for similar items in EconPapers)
JEL-codes: E02 R31 O18 (search for similar items in EconPapers)
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Working Paper: What causes the Positive Price-Turnover Correlation in European Housing Markets? (2016)
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