IDEAS home Printed from https://ideas.repec.org/a/gam/jlands/v12y2023i2p518-d1074552.html
   My bibliography  Save this article

How a Short-Lived Rumor of Residential Redevelopment Disturbs a Local Housing Market: Evidence from Hangzhou, China

Author

Listed:
  • Yanjiang Zhang

    (Chinese Academy of Housing and Real Estate, Zhejiang University of Technology, No. 18 Chaowang Road, Gongshu District, Hangzhou 310014, China
    School of Management, Zhejiang University of Technology, No. 18 Chaowang Road, Gongshu District, Hangzhou 310014, China)

  • Hongyi Fan

    (School of Management, Zhejiang University of Technology, No. 18 Chaowang Road, Gongshu District, Hangzhou 310014, China)

  • Qingling Liu

    (School of Management, Zhejiang University of Technology, No. 18 Chaowang Road, Gongshu District, Hangzhou 310014, China)

  • Xiaofen Yu

    (Chinese Academy of Housing and Real Estate, Zhejiang University of Technology, No. 18 Chaowang Road, Gongshu District, Hangzhou 310014, China
    School of Management, Zhejiang University of Technology, No. 18 Chaowang Road, Gongshu District, Hangzhou 310014, China)

  • Shangming Yang

    (Hangzhou Jointfounder Information Technology Co., Ltd., Hangzhou 310012, China)

Abstract

This paper investigates how a short-lived rumor of residential redevelopment triggered herding trading and housing price overreactions in a local housing market in Hangzhou. Through event studies, we find that herding purchasing caused a short-term housing price overreaction. Simultaneously, existing homeowners became reluctant to sell, and the number of new listings for sale decreased temporarily. However, we find no evidence of a decrease in market efficiency. A herding investor who purchased an average home may have suffered a loss of CNY 593,907 after the rumor weakened, equivalent to 8.7 years of income for an average resident in Hangzhou in 2021. This study reveals the importance of government policy communication, and the detrimental impact of ambiguous urban renewal policies on housing market stability and wealth redistribution.

Suggested Citation

  • Yanjiang Zhang & Hongyi Fan & Qingling Liu & Xiaofen Yu & Shangming Yang, 2023. "How a Short-Lived Rumor of Residential Redevelopment Disturbs a Local Housing Market: Evidence from Hangzhou, China," Land, MDPI, vol. 12(2), pages 1-15, February.
    • Handle: RePEc:gam:jlands:v:12:y:2023:i:2:p:518-:d:1074552
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2073-445X/12/2/518/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2073-445X/12/2/518/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Siqi Zheng & Weizeng Sun & Matthew E. Kahn, 2016. "Investor Confidence as a Determinant of China's Urban Housing Market Dynamics," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 44(4), pages 814-845, October.
    2. Clapp, John M. & Bardos, Katsiaryna Salavei & Wong, S.K., 2012. "Empirical estimation of the option premium for residential redevelopment," Regional Science and Urban Economics, Elsevier, vol. 42(1-2), pages 240-256.
    3. DeFusco, Anthony A. & Nathanson, Charles G. & Zwick, Eric, 2022. "Speculative dynamics of prices and volume," Journal of Financial Economics, Elsevier, vol. 146(1), pages 205-229.
    4. Alonso, José M. & Andrews, Rhys & Jorda, Vanesa, 2019. "Do neighbourhood renewal programs reduce crime rates? Evidence from England," Journal of Urban Economics, Elsevier, vol. 110(C), pages 51-69.
    5. Kenneth R. Ahern & Denis Sosyura, 2015. "Rumor Has It: Sensationalism in Financial Media," The Review of Financial Studies, Society for Financial Studies, vol. 28(7), pages 2050-2093.
    6. Andreas Mense & Konstantin Kholodilin, 2014. "Noise expectations and house prices: the reaction of property prices to an airport expansion," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 52(3), pages 763-797, May.
    7. Rosenthal, Stuart S., 2008. "Old homes, externalities, and poor neighborhoods. A model of urban decline and renewal," Journal of Urban Economics, Elsevier, vol. 63(3), pages 816-840, May.
    8. Andrei, Daniel & Cujean, Julien, 2017. "Information percolation, momentum and reversal," Journal of Financial Economics, Elsevier, vol. 123(3), pages 617-645.
    9. Patrick J. Bayer & Christopher Geissler & James W. Roberts, 2011. "Speculators and Middlemen: The Role of Flippers in the Housing Market," Working Papers 11-03, Duke University, Department of Economics.
    10. Li, Feng & Xiao, Jing Jian, 2020. "Losing the future: Household wealth from urban housing demolition and children's human capital in China," China Economic Review, Elsevier, vol. 63(C).
    11. John R. Nofsinger & Richard W. Sias, 1999. "Herding and Feedback Trading by Institutional and Individual Investors," Journal of Finance, American Finance Association, vol. 54(6), pages 2263-2295, December.
    12. Givord, Pauline & Quantin, Simon & Trevien, Corentin, 2018. "A long-term evaluation of the first generation of French urban enterprise zones," Journal of Urban Economics, Elsevier, vol. 105(C), pages 149-161.
    13. Yuming Fu & Wenlan Qian, 2014. "Speculators and Price Overreaction in the Housing Market," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 42(4), pages 977-1007, December.
    14. Alina Sorescu & Nooshin L. Warren & Larisa Ertekin, 2017. "Event study methodology in the marketing literature: an overview," Journal of the Academy of Marketing Science, Springer, vol. 45(2), pages 186-207, March.
    15. Galariotis, Emilios C. & Rong, Wu & Spyrou, Spyros I., 2015. "Herding on fundamental information: A comparative study," Journal of Banking & Finance, Elsevier, vol. 50(C), pages 589-598.
    16. Qinran Yang & David Ley, 2019. "Residential relocation and the remaking of socialist workers through state-facilitated urban redevelopment in Chengdu, China," Urban Studies, Urban Studies Journal Limited, vol. 56(12), pages 2480-2498, September.
    17. Blaufus, Kay & Möhlmann, Axel & Schwäbe, Alexander N., 2019. "Stock price reactions to news about corporate tax avoidance and evasion," Journal of Economic Psychology, Elsevier, vol. 72(C), pages 278-292.
    18. K. Chau & S. Wong, 2014. "Externalities of Urban Renewal: A Real Option Perspective," The Journal of Real Estate Finance and Economics, Springer, vol. 48(3), pages 546-560, April.
    19. Edmans, Alex, 2011. "Does the stock market fully value intangibles? Employee satisfaction and equity prices," Journal of Financial Economics, Elsevier, vol. 101(3), pages 621-640, September.
    20. Otto A. Davis & Andrew Whinston, 1962. "Externalities, Welfare, and the Theory of Games," Journal of Political Economy, University of Chicago Press, vol. 70(3), pages 241-241.
    21. 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.
    22. Ville Rantala, 2019. "How Do Investment Ideas Spread through Social Interaction? Evidence from a Ponzi Scheme," Journal of Finance, American Finance Association, vol. 74(5), pages 2349-2389, October.
    23. Patrick Bayer & Kyle Mangum & James W. Roberts, 2021. "Speculative Fever: Investor Contagion in the Housing Bubble," American Economic Review, American Economic Association, vol. 111(2), pages 609-651, February.
    24. Zahirovich-Herbert, Velma & Gibler, Karen M., 2014. "The effect of new residential construction on housing prices," Journal of Housing Economics, Elsevier, vol. 26(C), pages 1-18.
    25. Zhou, Zhengyi, 2016. "Overreaction to policy changes in the housing market: Evidence from Shanghai," Regional Science and Urban Economics, Elsevier, vol. 58(C), pages 26-41.
    26. Kiel Katherine A. & McClain Katherine T., 1995. "House Prices during Siting Decision Stages: The Case of an Incinerator from Rumor through Operation," Journal of Environmental Economics and Management, Elsevier, vol. 28(2), pages 241-255, March.
    27. Loutskina, Elena & Strahan, Philip E., 2015. "Financial integration, housing, and economic volatility," Journal of Financial Economics, Elsevier, vol. 115(1), pages 25-41.
    28. Lizheng Zhang & Yumin Ye & Jiejing Wang, 2022. "Influential Factors and Geographical Differences in the Redevelopment Willingness of Urban Villagers: A Case Study of Guangzhou, China," Land, MDPI, vol. 11(2), pages 1-18, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Deng, Kuang Kuang & Wong, Siu Kei & Cheung, Ka Shing & Tse, Kwok Sang, 2022. "Do real estate investors trade on momentum?," The North American Journal of Economics and Finance, Elsevier, vol. 62(C).
    2. Sören Gröbel, 2018. "Regional heterogeneity in age-related housing depreciation rates [Regionale Heterogenität altersbedingter Wertminderungen von Wohnimmobilien]," Review of Regional Research: Jahrbuch für Regionalwissenschaft, Springer;Gesellschaft für Regionalforschung (GfR), vol. 38(2), pages 219-254, October.
    3. Gu, Chen & Guo, Xu & Zhang, Chengping, 2022. "Analyst target price revisions and institutional herding," International Review of Financial Analysis, Elsevier, vol. 82(C).
    4. Reveley Callum & Shanaev Savva & Bin Yu & Panta Humnath & Ghimire Binam, 2023. "Analyst herding—whether, why, and when? Two new tests for herding detection in target forecast prices," Economics and Business Review, Sciendo, vol. 9(4), pages 25-55, December.
    5. Vassilios Babalos & Mehmet Balcilar & Rangan Gupta, 2014. "Revisiting Herding Behavior in REITs: A Regime-Switching Approach," Working Papers 201448, University of Pretoria, Department of Economics.
    6. Yuming Fu & Wenlan Qian & Bernard Yeung, 2016. "Speculative Investors and Transactions Tax: Evidence from the Housing Market," Management Science, INFORMS, vol. 62(11), pages 3254-3270, November.
    7. Puput Tri Komalasari & Marwan Asri & Bernardinus M. Purwanto & Bowo Setiyono, 2022. "Herding behaviour in the capital market: What do we know and what is next?," Management Review Quarterly, Springer, vol. 72(3), pages 745-787, September.
    8. Jack Favilukis & Stijn Van Nieuwerburgh, 2021. "Out‐of‐Town Home Buyers and City Welfare," Journal of Finance, American Finance Association, vol. 76(5), pages 2577-2638, October.
    9. I. Koetsier & J.A. Bikker, 2017. "Herding behaviour of Dutch pension funds in sovereign bond investments," Working Papers 17-15, Utrecht School of Economics.
    10. Lan, Hao & Moreira, Fernando & Zhao, Sheng, 2023. "Can a house resale restriction policy curb speculation? Evidence from a quasi-natural experiment in China," International Review of Economics & Finance, Elsevier, vol. 83(C), pages 841-859.
    11. Arjoon, Vaalmikki & Bhatnagar, Chandra Shekhar & Ramlakhan, Prakash, 2020. "Herding in the Singapore stock Exchange," Journal of Economics and Business, Elsevier, vol. 109(C).
    12. Imran Yousaf & Shoaib Ali & Syed Zulfiqar Ali Shah, 2018. "Herding behavior in Ramadan and financial crises: the case of the Pakistani stock market," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 4(1), pages 1-14, December.
    13. Mario A. Fernandez & Shane L. Martin, 2020. "What’s so special about character?," Urban Studies, Urban Studies Journal Limited, vol. 57(16), pages 3236-3251, December.
    14. FUJISHIMA Shota & HOSHINO Tadao & SUGAWARA Shinya, 2020. "Heterogeneous Treatment Effects of Place-based Policies: Which Cities Should be Targeted?," Discussion papers 20036, Research Institute of Economy, Trade and Industry (RIETI).
    15. Krokida, Styliani-Iris & Makrychoriti, Panagiota & Spyrou, Spyros, 2020. "Monetary policy and herd behavior: International evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 170(C), pages 386-417.
    16. Lee, Kyuseok, 2017. "Herd behavior of the overall market: Evidence based on the cross-sectional comovement of returns," The North American Journal of Economics and Finance, Elsevier, vol. 42(C), pages 266-284.
    17. Baltzer, Markus & Jank, Stephan & Smajlbegovic, Esad, 2019. "Who trades on momentum?," Journal of Financial Markets, Elsevier, vol. 42(C), pages 56-74.
    18. Ganglmair, Bernhard & Holcomb, Alex & Myung, Noah, 2020. "Expectations of reciprocity when competitors share information: Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 170(C), pages 244-267.
    19. Li, Wei & Rhee, Ghon & Wang, Steven Shuye, 2017. "Differences in herding: Individual vs. institutional investors," Pacific-Basin Finance Journal, Elsevier, vol. 45(C), pages 174-185.
    20. Syed Riaz Mahmood Ali, 2022. "Herding in different states and terms: evidence from the cryptocurrency market," Journal of Asset Management, Palgrave Macmillan, vol. 23(4), pages 322-336, July.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jlands:v:12:y:2023:i:2:p:518-:d:1074552. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.