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Optimism in Property Markets

Author

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  • Hana Cosic

    (Sant’Anna School of Advanced Studies, Piazza Martiri della Libertà 24, 56127 Pisa, Italy2BETA — University of Strasbourg, 61 Avenue de la Forêt Noire, 67000 — Strasbourg Cedex, France)

  • Yaz Gulnur Muradoglu

    (Queen Mary University London, School of Business and Management, Mile End Rd, Bethnal Green, London E1 4NS, UK)

Abstract

House valuation involves forecasting household demand for a neighborhood, whereas commercial property valuation involves forecasting area economic activity. Yet, we show optimistic expectations for both. We investigate further possible disparities due to different cultures of home ownership, short, medium, and long-term investment horizons, and bullish or bearish trends. We use an experimental framework to demonstrate expectations are optimistic under all conditions. Buyers use trends to surmise future prices in bull markets, expect price increases in oscillating markets, and price reversals in bear markets, failing to anticipate price busts. Policy implications are important in preventing property boom-induced financial crises.

Suggested Citation

  • Hana Cosic & Yaz Gulnur Muradoglu, 2024. "Optimism in Property Markets," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 14(02), pages 1-31, June.
    • Handle: RePEc:wsi:qjfxxx:v:14:y:2024:i:02:n:s2010139224400020
    DOI: 10.1142/S2010139224400020
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    Keywords

    Property price expectations; experimental finance; biases; optimism;
    All these keywords.

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G40 - Financial Economics - - Behavioral Finance - - - General
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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