House Prices and a Flood Event: An Empirical Investigation of Market Efficiency
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.
Volume (Year): 2 (1987)
Issue (Month): 2 ()
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References listed on IDEAS
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- 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.
- 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.