Explaining herding and volatility in the cyclical price dynamics of urban housing markets using a large scale agent-based model

Kirill S. Glavatskiy, Mikhail Prokopenko, Adrian Carro, Paul Ormerod and Michael Harre

Papers from arXiv.org

Abstract: Urban housing markets, along with markets of other assets, universally exhibit periods of strong price increases followed by sharp corrections. The mechanisms generating such non-linearities are not yet well understood. We develop an agent-based model populated by a large number of heterogeneous households. The agents' behavior is compatible with economic rationality, with the trend-following behavior found to be essential in replicating market dynamics. The model is calibrated using several large and distributed datasets of the Greater Sydney region (demographic, economic and financial) across three specific and diverse periods since 2006. The model is not only capable of explaining price dynamics during these periods, but also reproduces the novel behavior actually observed immediately prior to the market peak in 2017, namely a sharp increase in the variability of prices. This novel behavior is related to a combination of trend-following aptitude of the household agents (rational herding) and their propensity to borrow.

Date: 2020-04
New Economics Papers: this item is included in nep-cmp, nep-rmg and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://arxiv.org/pdf/2004.07571 Latest version (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: https://EconPapers.repec.org/RePEc:arx:papers:2004.07571

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().