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Impact of Housing Policy Uncertainty on Herding Behavior: Evidence from UK's Regional Housing Markets

Author

Listed:
  • Geoffrey M. Ngene

    (Stetson-Hatcher School of Business (SHSB), Mercer University, 1501 Mercer University Drive, Macon, GA 32107, USA)

  • Rangan Gupta

    (Department of Economics, University of Pretoria, Pretoria, 0002, South Africa)

Abstract

This study investigates the impact of housing policy uncertainty on the herding behavior in the UK's regional housing markets. Using a sample of thirteen regional housing markets and quarterly data from 1973Q4 to 2019Q2, we find that the probability of herding behavior is increasing in policy uncertainty in nine of the thirteen regions and the national housing market. However, London and the Outer Metro regions, which have a high presence of institutional investors and high population, exhibit decreasing probability of herding as policy uncertainty increases. We attribute this to the presence of informed investors and low asset value uncertainty. Therefore, since herding amplify market volatility, instability, fragility and asset mispricing, policy makers need to minimize policy uncertainties and implement regulatory mechanisms such as circuit breakers to circumvent the policy information risk from inducing non-information and irrational herding behavior among the investors.

Suggested Citation

  • Geoffrey M. Ngene & Rangan Gupta, 2021. "Impact of Housing Policy Uncertainty on Herding Behavior: Evidence from UK's Regional Housing Markets," Working Papers 202115, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:202115
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    References listed on IDEAS

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    More about this item

    Keywords

    Herding; Regional Housing Markets; Housing Policy Uncertainty; United Kingdom;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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