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Momentum and Reversion to Fundamentals: Are They Captured by Subjective Expectations of House Prices?

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  • Ma, Chao

Abstract

Many studies documented that actual asset-price movements exhibit momentum and reversion to fundamentals. We study real estate markets and find that households’ subjective house-price expectations capture momentum but not reversion to fundamentals. Moreover, if house prices are currently deviated upwards (downwards) from their long-run relationship with economic fundamentals, households will have even higher (lower) expectations of future appreciations. Additional empirical results suggest that the more likely reason is that households do not have accurate perception of the fundamental value (fundamental-misperception conjecture) than that they do not believe that mispricing will be quickly corrected by the market (mispricing-persistence conjecture).

Suggested Citation

  • Ma, Chao, 2020. "Momentum and Reversion to Fundamentals: Are They Captured by Subjective Expectations of House Prices?," Journal of Housing Economics, Elsevier, vol. 49(C).
  • Handle: RePEc:eee:jhouse:v:49:y:2020:i:c:s1051137720300243
    DOI: 10.1016/j.jhe.2020.101687
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    Cited by:

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    2. Tamás Kiss & Hoang Nguyen & Pär Österholm, 2021. "Modelling Returns in US Housing Prices—You’re the One for Me, Fat Tails," JRFM, MDPI, vol. 14(11), pages 1-17, October.

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    More about this item

    Keywords

    Asset-Price Expectations; House-Price Expectations; Irrational Expectations; Momentum; Reversion to Fundamentals; House-Price Dynamics;
    All these keywords.

    JEL classification:

    • E7 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G4 - Financial Economics - - Behavioral Finance
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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