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The Impact of Investor Sentiment on Housing Prices and the Property Stock Index Volatility in South Africa

Author

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  • Muzindutsi Paul-Francois

    (School of Accounting, Economics and Finance, University of KwaZulu-Natal, University Road, Westville Bag X 5400, Durban 4000, South Africa)

  • Apau Richard

    (School of Accounting, Economics and Finance, University of KwaZulu-Natal, University Road, Westville Bag X 5400, Durban 4000, South Africa)

  • Muguto Lorraine

    (School of Accounting, Economics and Finance, University of KwaZulu-Natal, University Road, Westville Bag X 5400, Durban 4000, South Africa)

  • Muguto Hilary Tinotenda

    (School of Accounting, Economics and Finance, University of KwaZulu-Natal, University Road, Westville Bag X 5400, Durban 4000, South Africa)

Abstract

While prior studies have examined the predictive effect of macroeconomic and country risk components on property stock index dynamics, limited explanations exist in the literature regarding the time-varying effect of investor sentiment on housing prices. Accordingly, this study assesses the impact of investor sentiment on housing properties’ returns and the effect of investor sentiment on the conditional volatility of housing price indices under different market conditions, using GARCH, GJR-GARCH, E-GARCH and Markov-switching VAR models. We found investor sentiment to significantly impact the risk premium of the property returns, where property returns increased with positive changes in investor sentiment, and conditional volatility of property returns decreased with the same changes in investor sentiment. Investor sentiment exerts positive predictive influences on the prices of small and medium houses, in both bullish and bearish market conditions but does not affect the large housing market segment. This makes the implementation of risk-related diversification across small and medium real estate portfolios more effective than large real estate portfolios. Our findings show that investor sentiment is a plausible driver of mass investor redemption actions under conditions of uncertainty.

Suggested Citation

  • Muzindutsi Paul-Francois & Apau Richard & Muguto Lorraine & Muguto Hilary Tinotenda, 2023. "The Impact of Investor Sentiment on Housing Prices and the Property Stock Index Volatility in South Africa," Real Estate Management and Valuation, Sciendo, vol. 31(2), pages 1-17, June.
    • Handle: RePEc:vrs:remava:v:31:y:2023:i:2:p:1-17:n:6
    DOI: 10.2478/remav-2023-0009
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    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G40 - Financial Economics - - Behavioral Finance - - - General

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