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The Impact of Real Estate Prices:Noise Tradersí Self-Fulfilling Expectations and Market Stress

Author

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  • KuoChe Hung
  • MingChi Chen
  • LingYu Huang

Abstract

This paper examines whether noise traders generated by self-fulfilling mechanisms cause irrational price volatility. Because their self-fulfilling expectations are based on market sentiment, the regulators need to stabilize the prices through policy announcements or policy tools. This study analyzes noise tradersí self-fulfilling expectation in the Chinaís market where government strongly interfere. We find that asymmetric information may initiate noise traders into self-fulfilling expectation, and government is unsuccessful to control the house price shooting. We further consider the influence of market state switching. It finds that market presents evidence of self-fulfilling expectation, and also increased price volatility counteracts government intervention. Finally, other financial markets except stock are still ineffectiveness by controlling contagion effect.

Suggested Citation

  • KuoChe Hung & MingChi Chen & LingYu Huang, 2011. "The Impact of Real Estate Prices:Noise Tradersí Self-Fulfilling Expectations and Market Stress," ERES eres2011_204, European Real Estate Society (ERES).
    • Handle: RePEc:arz:wpaper:eres2011_204
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    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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