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Time-Varying and Spatial Herding Behavior in the US Housing Market: Evidence from Direct Housing Prices

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  • Geoffrey M. Ngene

    () (Mercer University)

  • Daniel P. Sohn

    () (Mercer University)

  • M. Kabir Hassan

    () (University of New Orleans)

Abstract

Abstract This paper investigates herding behavior in the US residential housing market. The sample period is 1975 M01 to 2015 M06. The study utilizes the housing price index of each of the 50 states and Washington DC to form nine census region-based markets, or portfolios and then employs switching and quantile regressions to examine the spatial and time-varying disparities of housing return dispersions and investors’ herding behavior. The study finds that the degree of herding varies across regimes, regions and conditional distributions. The regime-specific herd formation may be partially originated by extreme housing market conditions, bull and bear housing market conditions, uncertainty in national financial markets, economic recessions and uncertainty of economic policies. The bull housing markets exhibits stronger effects on return dispersion than down markets, which is consistent with the “flight-to-safety” consensus behavior of investors. The study also finds that positive and negative linear and nonlinear returns magnify dispersions in an asymmetric manner. The increase in co-movement and interdependence of state and regional-level housing markets returns among geographically diverse states and regions offer little hope of successful geographical portfolio diversification strategies for U.S housing market investors. Moreover, time-invariant modeling may yield incorrect inferences regarding herd formation in regional housing markets.

Suggested Citation

  • Geoffrey M. Ngene & Daniel P. Sohn & M. Kabir Hassan, 2017. "Time-Varying and Spatial Herding Behavior in the US Housing Market: Evidence from Direct Housing Prices," The Journal of Real Estate Finance and Economics, Springer, vol. 54(4), pages 482-514, May.
  • Handle: RePEc:kap:jrefec:v:54:y:2017:i:4:d:10.1007_s11146-016-9552-5
    DOI: 10.1007/s11146-016-9552-5
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    Keywords

    Herding; CSAD; Housing market; Regimes; Switching regression;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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