Anchoring and loss aversion in the housing market: Implications on price dynamics

Leung, Tin Cheuk; Tsang, Kwok Ping

doi:10.1016/j.chieco.2012.10.003

Cited by 39 publications

(23 citation statements)

References 17 publications

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“…Examples involving UBS, Merrill Lynch, Citigroup, Standard and Poor, the SEC and end investors illustrate this point. Leung and Tsang (2013), also by using a data set that contains most real estate transactions in Hong Kong from 1992 to 2006, find anchoring and loss aversion to be important, and the results are robust to type of housing and sample period. The finding is consistent with the strong correlations among house price, price dispersion and volume found in the data.…”

Section: Market Performance Evidencementioning

confidence: 86%

Loss aversion, overconfidence of investors and their impact on market performance evidence from the US stock markets

Bouteska

Regaieg

2020

JEFAS

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Purpose-The current study aims to investigate the impacts of two behavioral biases, namely, loss aversion and overconfidence on the performance of US companies. First, the impact of loss aversion on the economic performance of companies was assessed. Second, the impact of overconfidence on market performance was discussed. Design/methodology/approach-This study used around 6,777 quarterly observations on the population of US-insured industrial and services companies over the 2006-2016 period. Ordinary least squares (OLS) regression in two panel data models were used to test the hypotheses formulated for the study. Findings-It was documented that the loss-aversion bias negatively affects the economic performance of companies and this is achieved for both sectors. In contrast, the findings suggest that overconfidence positively affects market performance of industrial firms but negatively affects market performance in service firms. Further robust evidence was found that overconfidence bias seems to be dominant, and hence, investors may tend to be more overconfident rather than more loss-averse. Originality/value-This research can be extended by focusing on the following question: What is the impact of the contradictory (positive and negative) effects of an investor's loss aversion and overconfidence on the US company performance in case of realization of a stock market crisis or stock market crash?

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Section: Market Performance Evidencementioning

confidence: 86%

Loss aversion, overconfidence of investors and their impact on market performance evidence from the US stock markets

Bouteska

Regaieg

2020

JEFAS

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“…In the housing market, both Northcraft and Neale (1987) and Black and Diaz (1996) find that a buyer's opening offer is affected by the seller's asking price. In Leung and Tsang (2012), we find strong evidence of anchoring and loss aversion in the Hong Kong housing market. Taking both cognitive biases as given, we begin with a theoretical model of the housing market with loss-averse sellers and anchoring buyers.…”

Section: Introductionmentioning

confidence: 71%

“…In Leung and Tsang (2012) we present a simple model of the housing market with loss-averse sellers and anchoring buyers. The model is static, and we show that under some reasonable assumptions the two cognitive biases can explain the positive correlation among house prices, transaction volume and price dispersion.…”

Section: Dynamic Housing Market With Anchoring and Loss Aversionmentioning

confidence: 99%

Can Anchoring and Loss Aversion Explain the Predictability of Housing Prices?

Leung

Tsang

2013

Pacific Economic Review

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We offer an explanation of why changes in house price are predictable. We consider a housing market with loss‐averse sellers and anchoring buyers in a dynamic setting. We show that when both cognitive biases are present, changes in house prices are predicted by price dispersion and trade volume. Using a sample of housing transactions in Hong Kong from 1992 to 2006, we find that price dispersion and transaction volume are, indeed, powerful predictors of housing return. For both in and out of sample, the two variables predict as well as conventional predictors such as the real interest rate and real stock return.

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“…Unfortunately, prospect theory offers no clear guidance regarding the identification of reference points. In real estate loss aversion literature, the most commonly used reference point is previous purchase (Anenberg 2011;Bokhari and Geltner 2011;Genesove and Mayer 2001;Leung and Tsang 2013). The advantage of such an approach is that previous purchase prices are observable and salient.…”

Section: Reference Point Determinationmentioning

confidence: 99%

Reference dependence, loss aversion and residential property development decisions

Bao

Meng

2021

J Hous and the Built Environ

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We analyse land transaction and residential development data from Beijing, China and identify that developers’ evaluation of land transaction exhibits reference dependence and loss aversion. Developers with prior land transaction losses set higher house prices than those without prior losses. This effect is strongest at the beginning and towards the end of the property sales period. It is moderated by developers’ ownership structure and listing status. Privately-owned firms experience stronger effects than their state-owned counterparts, whereas unlisted firms are more strongly affected than their listed counterparts. Results have implications on the relationship between the land and the housing markets in China. In a booming land market where land acquisition entails a high price, developers will transfer excess land price to house prices, thereby increasing the latter. The land market plays an integral role in managing housing prices in China.

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Anchoring and loss aversion in the housing market: Implications on price dynamics

Cited by 39 publications

References 17 publications

Loss aversion, overconfidence of investors and their impact on market performance evidence from the US stock markets

Loss aversion, overconfidence of investors and their impact on market performance evidence from the US stock markets

Can Anchoring and Loss Aversion Explain the Predictability of Housing Prices?

Reference dependence, loss aversion and residential property development decisions

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