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Peer Sentiment and Firm Production Decisions: Evidence from Homebuilders

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  • Thao Le

    (Georgia State University)

Abstract

This paper examines the effect of peer sentiment on firm production decisions using data from public homebuilders in the US. Peer sentiment is measured by the NAHB/Wells Fargo Housing Market Index, derived from a monthly survey of homebuilders’ perceptions about the housing market. A one-standard-deviation increase in the peer sentiment index induces an average builder to increase their land inventory by 6.4% (4,937 lots) and building expenses by 5.9% ($34.5 million). The effect is weaker when firms are highly divided in their opinions. Following peer sentiment does not affect stock price performance, but overbuilding is associated with a lower return-on-asset.

Suggested Citation

  • Thao Le, 2025. "Peer Sentiment and Firm Production Decisions: Evidence from Homebuilders," The Journal of Real Estate Finance and Economics, Springer, vol. 71(3), pages 510-544, October.
    • Handle: RePEc:kap:jrefec:v:71:y:2025:i:3:d:10.1007_s11146-024-09976-1
    DOI: 10.1007/s11146-024-09976-1
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    Keywords

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    JEL classification:

    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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