Optimism in Property Markets

Hana Cosic and Yaz Gulnur Muradoglu ()
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Hana Cosic: Sant’Anna School of Advanced Studies, Piazza Martiri della Libertà 24, 56127 Pisa, Italy2BETA — University of Strasbourg, 61 Avenue de la Forêt Noire, 67000 — Strasbourg Cedex, France
Yaz Gulnur Muradoglu: Queen Mary University London, School of Business and Management, Mile End Rd, Bethnal Green, London E1 4NS, UK

Quarterly Journal of Finance (QJF), 2024, vol. 14, issue 02, 1-31

Abstract: House valuation involves forecasting household demand for a neighborhood, whereas commercial property valuation involves forecasting area economic activity. Yet, we show optimistic expectations for both. We investigate further possible disparities due to different cultures of home ownership, short, medium, and long-term investment horizons, and bullish or bearish trends. We use an experimental framework to demonstrate expectations are optimistic under all conditions. Buyers use trends to surmise future prices in bull markets, expect price increases in oscillating markets, and price reversals in bear markets, failing to anticipate price busts. Policy implications are important in preventing property boom-induced financial crises.

Keywords: Property price expectations; experimental finance; biases; optimism (search for similar items in EconPapers)
JEL-codes: D84 G40 G41 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1142/S2010139224400020

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