Real Estate Bubbles and Contagion: Evidence from Selected European Countries

Bago, Jean-Louis; Rherrad, Imad; Akakpo, Koffi; Ouédraogo, Ernest

doi:10.15353/rea.v13i3.1823

Cited by 4 publications

(2 citation statements)

References 27 publications

(49 reference statements)

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“…From a different perspective, Bago et al (2021) found evidence of the formation of asset bubbles in several European countries in recent years. Cunha and Lobão (2021) showed that Portugal’s larger municipalities experienced abnormal house price growth due to investors transferring houses from residential to tourism.…”

Section: Literature Reviewmentioning

confidence: 99%

Heuristics and cognitive biases in the housing investment market

Cascão

Quelhas²,

Cunha³

2022

IJHMA

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Purpose This paper aims to analyze the heuristics and cognitive biases described by behavioral finance in the investment decision-making process of Portugal’s housing market. Design/methodology/approach In a first step, the authors applied an exploratory factor analysis (EFA) to assess the impact of heuristics and cognitive biases on investors’ decision-making. In a second step, the authors run a structural equation model (SEM) diagram path to assess if the sociodemographic characteristics of housing market investors determine the identified heuristics and if the heuristics condition the investors’ investment criteria. Findings Herd behavior and the heuristics of representativeness, availability and anchoring influence the housing market’s investors’ behavior in their decision-making process. Investors with above-average income show higher levels of overconfidence. Investors showing higher levels of overconfidence also tend to be more sensitive to the house price under analysis for investment. Women tend to show higher levels of the availability and anchoring heuristic. In turn, housing market investors showing higher levels of availability and anchoring heuristic tend to be more sensitive to the price and location of the house under analysis for investment. Research limitations/implications The explained variance of the EFA is below 50%, and the root mean square of approximation of the SEM is above the threshold of 0.05. These indicators are evidence of the models’ fragility. Practical implications Governments and regulators can better prevent real estate bubbles if they monitor behavioral biases and heuristics of housing investors together with quantitative indicators. Realtors can profit from adapting their marketing strategy and commercial communication to investors of sociodemographic groups more prone to a specific type of heuristics. Originality/value To the best of the authors’ knowledge, this is the first study that combines the contributions of behavioral finance with Portugal’s housing investment market and the first study connecting heuristics to investment criteria.

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Section: Literature Reviewmentioning

confidence: 99%

Heuristics and cognitive biases in the housing investment market

Cascão

Quelhas²,

Cunha³

2022

IJHMA

View full text Add to dashboard Cite

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“…Real estate bubble detection is a topic of ongoing research among economists. The empirical literature has investigated the presence and migration of real estate bubbles in different countries, including the United States [1][2][3], Japan [4], Australia [1], China [5], New Zealand [6,7], Israel [8], Canada [9,10] and the OECD countries [11][12][13][14][15].…”

Section: Introductionmentioning

confidence: 99%

An Empirical Investigation on Bubbles Contagion in Scandinavian Real Estate Markets

et al. 2022

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This paper investigates the presence of speculative bubbles in the Scandinavian countries namely Denmark, Finland, Norway, and Sweden over the period from 1980Q1 to 2018Q4 and searches for evidence of bubble migration among those countries. First, we apply the GSADF test developed by Phillips et al. (2015) on quarterly housing price-to-rent ratios to test for exuberance and episodic bubbles. Subsequently, we examine bubble migration between these markets using the non-parametric model with time-varying coefficients (NPM-TVC) developed by Greenaway-McGrevy and Phillips (2016). We find evidence of episodic bubbles in all the Scandinavian real estate markets for the period 1980 to 2018. Our results also indicate that housing bubbles are contagious between these markets during several periods, and the market connection is stronger for geographically neighboring countries.

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Volatility Spillover and International Contagion of Housing Bubbles

Bago

Akakpo

Rherrad

et al. 2021

JRFM

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This paper provides new empirical evidence on housing bubble timing, volatility spillover, and bubble contagion between Japan and its economic partners, namely, the United States, the Eurozone, and the United Kingdom. First, we apply a generalized sup ADF (GSADF) test to the quarterly price-to-rent ratio from 1970Q1 to 2018Q4 to detect explosive behaviors in housing prices. Second, we analyze the volatility spillover in housing prices between Japan and its economic partners using the multivariate time-varying DCC-GARCH model. Third, we assess bubble contagion by estimating a non-parametric model of bubble migration with time-varying coefficients. We document two historical bubble episodes from 1970 to 2018 in Japan’s housing market. Moreover, we find evidence of volatility spillover effects and bubble contagion between Japan’s real estate market and its most important economic partners during several periods. In this context of market integration, countries need to develop coordinated real estate policies to address the risk of global real estate bubbles.

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Real Estate Bubbles and Contagion: Evidence from Selected European Countries

Cited by 4 publications

References 27 publications

Heuristics and cognitive biases in the housing investment market

Heuristics and cognitive biases in the housing investment market

An Empirical Investigation on Bubbles Contagion in Scandinavian Real Estate Markets

Volatility Spillover and International Contagion of Housing Bubbles

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