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House Prices and a Flood Event: An Empirical Investigation of Market Efficiency

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    Abstract

    In this study, house-price reactions to a first-time disastrous flood are investigated. Conventional wisdom predicted prices would decline and later regain lost value as the market forgot the flood. In fact, sample home prices do not fall immediately after the flood and do not later rise. On the other hand, when flood insurance premiums rise dramatically approximately one year after the flood, these higher rates are capitalized into home values and prices do decline. The findings are consistent with rational and efficient markets.

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    File URL: http://aux.zicklin.baruch.cuny.edu/jrer/papers/pdf/past/vol02n02/v02p075.pdf
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    Bibliographic Info

    Article provided by American Real Estate Society in its journal Journal of Real Estate Research.

    Volume (Year): 2 (1987)
    Issue (Month): 2 ()
    Pages: 75-83

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    Handle: RePEc:jre:issued:v:2:n:2:1987:p:75-83

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    Postal: American Real Estate Society Clemson University School of Business & Behavioral Science Department of Finance 401 Sirrine Hall Clemson, SC 29634-1323
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    Web page: http://www.aresnet.org/

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    Postal: Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323
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    Web: http://aux.zicklin.baruch.cuny.edu/jrer/about/get.htm

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    1. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
    2. George W. Gau, 1985. "Public Information and Abnormal Returns in Real Estate Investment," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 13(1), pages 15-31.
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    Cited by:
    1. Gunther Maier & Shanaka Herath, 2009. "Real Estate Market Efficiency: A Survey of Literature," SRE-Disc sre-disc-2009_07, Institute for the Environment and Regional Development, Department of Socioeconomics, Vienna University of Economics and Business.
    2. Céline Grislain-Letrémy & Bertrand Villeneuve, 2011. "Natural and Industrial Disasters : Land Use and Insurance," Working Papers 2011-32, Centre de Recherche en Economie et Statistique.
    3. Daniel, Vanessa E. & Florax, Raymond J.G.M. & Rietveld, Piet, 2009. "Flooding risk and housing values: An economic assessment of environmental hazard," Ecological Economics, Elsevier, vol. 69(2), pages 355-365, December.
    4. Chris Eves & Sara Wilkinson, 2014. "Assessing the immediate and short-term impact of flooding on residential property participant behaviour," Natural Hazards, International Society for the Prevention and Mitigation of Natural Hazards, vol. 71(3), pages 1519-1536, April.
    5. David M. Harrison & Greg T. Smersh & Arthur L. Schwartz, Jr, 2001. "Environmental Determinants of Housing Prices: The Impact of Flood Zone Status," Journal of Real Estate Research, American Real Estate Society, vol. 21(1/2), pages 3-20.
    6. Russell McKenzie & John Levendis, 2010. "Flood Hazards and Urban Housing Markets: The Effects of Katrina on New Orleans," The Journal of Real Estate Finance and Economics, Springer, vol. 40(1), pages 62-76, January.

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