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Misinformed Speculators and Mispricing in the Housing Market

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  • Alex Chinco
  • Christopher Mayer

Abstract

This paper examines the contribution of out-of-town second-house buyers to mispricing in the housing market. We show that demand from out-of-town second-house buyers during the mid 2000s predicted not only house-price appreciation rates but also implied-to-actual-rent-ratio appreciation rates, a proxy for mispricing. We then apply a novel identification strategy to address the issue of reverse causality. We give supporting evidence that out-of-town second-house buyers behaved like misinformed speculators, earning lower capital gains (misinformed) and consuming smaller dividends (speculators). Received August 4, 2014; accepted August 28, 2015 by Editor Stefan Nagel.

Suggested Citation

  • Alex Chinco & Christopher Mayer, 2016. "Misinformed Speculators and Mispricing in the Housing Market," The Review of Financial Studies, Society for Financial Studies, vol. 29(2), pages 486-522.
    • Handle: RePEc:oup:rfinst:v:29:y:2016:i:2:p:486-522.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhv061
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    More about this item

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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