Overconfidence and Real Estate Research: A Survey of the Literature

Bao, Helen X. H.; Li, Steven Haotong

doi:10.1142/s0217590816500156

Cited by 10 publications

(14 citation statements)

References 107 publications

(135 reference statements)

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“…Another stream of literature is focused on expectational factors contributing to credit booms while leaving aside the assumptions of rational behavior and expectations. Psychological factors are used to explain the occurrence of household overconfidence (Bao and Li, 2016;Hwang et al, 2016). Some of the recent observations on credit booms build upon the concept of extrapolative expectations, which was used in the past to explain asset price movements (Schiller, 2000;Williams, 2013Williams, , 2013aWilliams, , 2014.…”

Section: Household Confidence and The Evolution Of Credit: A Reviewmentioning

confidence: 99%

Too much of a good thing? Households’ macroeconomic conditions and credit dynamics

Hodula

Malovaná

Frait

2022

German Economic Review

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Favorable macroeconomic conditions, accompanied by optimistic consumer confidence, can stimulate and shape households’ expectations in such a way that they gradually extrapolate the view of good times lasting “forever”. As a consequence, households can then be inclined to accept a much higher level of indebtedness – higher than they would be willing to take on if they were to correctly perceive a discontinuation of the positive trend in the future. This paper documents the empirical link between the macroeconomic conditions faced by households, the confidence of households as investors and consumers, and households’ demand for credit on a sample of 21 European countries. The well-known procyclicality of household credit is found to grow stronger when favorable macroeconomic conditions are met with optimistic consumer confidence. While household credit goes hand in hand with the improving economy during an economic upturn, it is found to be sticky on the way down. Estimates show that households tend to extrapolate recent and current macroeconomic trends to the future and over-estimate the persistence of favorable or adverse conditions.

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Section: Household Confidence and The Evolution Of Credit: A Reviewmentioning

confidence: 99%

Too much of a good thing? Households’ macroeconomic conditions and credit dynamics

Hodula

Malovaná

Frait

2022

German Economic Review

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“…Thus, what can be applied in the stock market does not necessarily apply to investment vehicles such as REITs. The impact of corporate governance on REITs' investments is one important example [48]. The authors explained that the agency problem is less likely to be present in the REIT market.…”

Section: Overconfidencementioning

confidence: 99%

“…This also highlights that corporate governance does have a role in reducing the behaviour bias. Second, the recent emergence of behavioural studies in the financial markets has resulted in an increasing number of research dedicated to REITs due to their unique characteristics [31][32][33]48], which includes REITs' property investments that can be exactly identified, a matter which is not possible with other companies [31]. Eichholtz and Yönder [31] stressed that this is specifically advantageous for behavioural studies because investments could be exactly observed unlike most other companies, which forces researchers then to focus on mergers and acquisitions.…”

Section: Introductionmentioning

confidence: 99%

CEO Overconfidence and Corporate Governance in Affecting Australian Listed Construction and Property Firms’ Trading Activity

2021

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This paper aims to examine whether and to what extent overconfident CEOs affect Australian real estate investment trusts’ (A-REITs) property investment activities during their tenure as the CEO of A-REITs, covering the period 2000–2019. A-REITs’ property investment and disposal activities are separately modelled against CEOs shares in their companies (an indicator of CEO overconfidence), as well as other controlled variables. We found that around 68% of A-REIT CEOs are overconfident over the study period. However, our empirical results also indicated that CEO overconfidence did not have a profound impact on A-REITs’ investment activities, either property acquisitions or disposals. This could be explained by high corporate governance of A-REITs. Specifically, Australian construction and property companies are the leading market players in sustainability. As publicly quoted companies, listed property and construction companies, particularly A-REITs could be exposed to various managerial issues, including corporate CEO overconfidence and its influence on the investment decision-making process. However, this managerial issue could be minimized via an enhancement of corporate governance that is a key pillar of sustainability. The mitigation of corporate overconfidence and implementation of corporate governance mechanisms makes REITs more accountable to their investors. The implications of the findings have also been discussed.

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“…In many research studies, it has been found that overconfidence is a common cause of many financial investment decisions, from short to long terms and from small to big amounts (Bao and Li, 2016;Macenczak et al, 2016). In these financial decisions, overconfidence bias affects the way investors perceive reality (Trejos et al, 2019).…”

Section: Introductionmentioning

confidence: 99%

Can financial literacy overconfidence be predicted by narcissistic tendencies?

Hamurcu

2020

RBF

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PurposeIn this study, it is investigated whether narcissistic tendencies can predict financial literacy overconfidence.Design/methodology/approachFinancial literacy overconfidence is analyzed under these three subcategories: overestimation, overplacement and overprecision, according to individual's self-perception of his/her own financial literacy. In order to evaluate narcissistic tendencies, the Turkish version of the Structured Clinical Interview for the Diagnostic and Statistical Manual of Mental Disorders Axis II (SCID II) Fourth Edition (DSM-IV) is used. To measure the financial literacy overestimation, overplacement and overprecision biases, a multistaged measurement process designed specially on basic and advanced financial literacy is implemented.FindingsThe current study provides strong evidence that narcissistic tendencies are predictors of financial literacy overestimation, overplacement and overprecision biases. These tendencies in men are greater than in women. Evaluated risk factors of being exposed to these biases among people who have narcissistic tendencies are found to be greater than among people who do not have those tendencies. Due to a particular exposure of narcissistic tendencies, the probability of financial literacy overprecision bias has the highest rate among the others, and it is followed by overestimation and overplacement bias.Originality/valueThis is the first study that measures overconfidence under three subcategories of overestimation, overplacement and overprecision, according to financial literacy. For this reason, it is believed that these results provide valuable evidence in favor of the relation between overconfidence in finance and narcissistic tendencies.

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Overconfidence and Real Estate Research: A Survey of the Literature

Cited by 10 publications

References 107 publications

Too much of a good thing? Households’ macroeconomic conditions and credit dynamics

Too much of a good thing? Households’ macroeconomic conditions and credit dynamics

CEO Overconfidence and Corporate Governance in Affecting Australian Listed Construction and Property Firms’ Trading Activity

Can financial literacy overconfidence be predicted by narcissistic tendencies?

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