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The Big Short: Short Selling Activity and Predictability in House Prices

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  • Pedro A.C. Saffi
  • Carles Vergara‐Alert

Abstract

We study how investors can use financial securities to speculate on the decrease of house prices. Unlike most asset types, houses are subject to high trading frictions and cannot be sold short directly. Using U.S. equity lending data from 2006 through 2013, we find evidence that an increase in the short selling activity of real estate investment trusts (REITs) forecasts a decrease in house prices in the subsequent month. The magnitude and significance of this effect vary with the geographical location of the REITs' underlying properties and with the housing cycle.

Suggested Citation

  • Pedro A.C. Saffi & Carles Vergara‐Alert, 2020. "The Big Short: Short Selling Activity and Predictability in House Prices," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 48(4), pages 1030-1073, December.
    • Handle: RePEc:bla:reesec:v:48:y:2020:i:4:p:1030-1073
    DOI: 10.1111/1540-6229.12219
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