Anchoring and Loss Aversion in the Housing Market: Implications on Price Dynamics
Tin Cheuk Leung () and
Kwok Ping Tsang ()
No 282011, Working Papers from Hong Kong Institute for Monetary Research
In this paper we develop a simple model with anchoring and loss aversion to explain house price dynamics. We have two testable implications: 1) when both cognitive biases are present, price dispersion and trade volume are pro-cyclical; 2) if anchoring decreases with time, then price dispersion and trade volume are higher for transactions whose previous purchase is more recent. Using a dataset that contains most real estate transactions in Hong Kong from 1992 to 2006, we find strong and significant anchoring and loss aversion which are robust to type of housing and sample period. The finding is consistent with the strong correlation between house price, price dispersion, and volume in the data. Moreover, anchoring decreases with time since previous transaction, and both price dispersion and volume show the same pattern. Our results suggest that anchoring and loss aversion can induce cyclicality in house prices.
Keywords: Price Dispersion; Anchoring; Loss Aversion; Housing Market (search for similar items in EconPapers)
JEL-codes: R31 D03 (search for similar items in EconPapers)
Pages: 29 pages
New Economics Papers: this item is included in nep-upt and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed
Downloads: (external link)
http://www.hkimr.org/uploads/publication/52/ub_ful ... o-28_2011-final-.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.hkimr.org/uploads/publication/52/ub_full_0_2_294_wp-no-28_2011-final-.pdf [301 Moved Permanently]--> http://www.aof.org.hk/research/HKIMR/uploads/publication/52/ub_full_0_2_294_wp-no-28_2011-final-.pdf [301 Moved Permanently]--> https://www.aof.org.hk/research/HKIMR/uploads/publication/52/ub_full_0_2_294_wp-no-28_2011-final-.pdf)
Journal Article: Anchoring and loss aversion in the housing market: Implications on price dynamics (2013)
Working Paper: Anchoring and Loss Aversion in the Housing Market: Implications on Price Dynamics (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:hkm:wpaper:282011
Access Statistics for this paper
More papers in Working Papers from Hong Kong Institute for Monetary Research Contact information at EDIRC.
Bibliographic data for series maintained by HKIMR ().