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On Malaysian House Price Growth: The Effects of Market Sentiments

Author

Listed:
  • Calvin W. H. Cheong
  • Lisa L. H. Ngui
  • Shella Georgina Beatrice

Abstract

This paper examines the factors that drive the recent exponential growth in Malaysian house prices. We first construct a sentiment index for the housing market in Malaysia guided by the methods employed by Baker and Wurgler (2006). Preliminary analyses of our bias-free sentiment index indicate a strong correlation with overall market confidence which attests to the reliability of our index. The results also show contemporaneous sentiment to strongly influence future housing market returns especially in the short-term. Contrary to the literature, our results suggest that it is property developer behaviour that drive sentiments and property prices. The study contributes to the literature by providing an easily generalizable method of constructing a housing market sentiment index in other countries that holistically accounts for essential housing market elements that are otherwise ignored in confidence indices. This study also contributes to practice as it provides evidence to policy-makers who wish to cool property markets may want to design interventions that are targeted at property developers instead of home-buyers or speculators.

Suggested Citation

  • Calvin W. H. Cheong & Lisa L. H. Ngui & Shella Georgina Beatrice, 2018. "On Malaysian House Price Growth: The Effects of Market Sentiments," Asian Journal of Finance & Accounting, Macrothink Institute, vol. 10(2), pages 167191-1671, December.
    • Handle: RePEc:mth:ajfa88:v:10:y:2018:i:2:p:167191
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    References listed on IDEAS

    as
    1. Jim Clayton & David Ling & Andy Naranjo, 2009. "Commercial Real Estate Valuation: Fundamentals Versus Investor Sentiment," The Journal of Real Estate Finance and Economics, Springer, vol. 38(1), pages 5-37, January.
    2. Changha Jin & Gokce Soydemir & Alan Tidwell, 2014. "The U.S. Housing Market and the Pricing of Risk: Fundamental Analysis and Market Sentiment," Journal of Real Estate Research, American Real Estate Society, vol. 36(2), pages 187-220.
    3. Monika Piazzesi & Martin Schneider, 2009. "Momentum Traders in the Housing Market: Survey Evidence and a Search Model," American Economic Review, American Economic Association, vol. 99(2), pages 406-411, May.
    4. Stambaugh, Robert F. & Yu, Jianfeng & Yuan, Yu, 2012. "The short of it: Investor sentiment and anomalies," Journal of Financial Economics, Elsevier, vol. 104(2), pages 288-302.
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    More about this item

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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