scholarly journals Rational Bubbles in UK Housing Markets: Comment on “No‐Bubble Condition: Model‐Free Tests in Housing Markets”

Econometrica ◽  
2020 ◽  
Vol 88 (4) ◽  
pp. 1755-1766 ◽  
Author(s):  
David Domeij ◽  
Tore Ellingsen
Keyword(s):  
Housing Market ◽  
Rational Expectations ◽  
Housing Markets ◽  
Price Difference ◽  
Rational Bubbles ◽  
Market Participants ◽  
Condition Model ◽  
Model Free ◽  
The Uk ◽  
Counter Argument

Giglio, Maggiori, and Stroebel (2016) show that there is no significant price difference between freeholds and ultra‐long leaseholds in the UK housing market. They claim that this finding precludes the presence of large rational bubbles, as these can only attach to the price of freeholds. But the conclusion presumes that leaseholders cannot acquire bubbles through enfranchisement at favorable prices. We find that the presumption is violated. Enfranchisement rights are comprehensive and cheap to exercise. We also dispute the counter‐argument that cheap enfranchisement proves that market participants, if they have rational expectations, must have explicitly concluded that freehold prices are bubbleless.

scholarly journals No-Bubble Condition: Model-Free Tests in Housing Markets

Econometrica ◽  
2016 ◽  
Vol 84 (3) ◽  
pp. 1047-1091 ◽  
Author(s):  
Stefano Giglio ◽  
Matteo Maggiori ◽  
Johannes Stroebel
Keyword(s):  
Housing Markets ◽  
Condition Model ◽  
Model Free

Evaluation of Currencies in the Foreign Exchange Market: Attitudes and Expectations of Foreign Exchange Traders

2001 ◽  
Vol 32 (3) ◽  
pp. 180-188 ◽  
Author(s):  
Thomas Oberlechner
Keyword(s):  
Foreign Exchange ◽  
Social Identity Theory ◽  
Rational Expectations ◽  
Foreign Exchange Market ◽  
Exchange Market ◽  
Psychological Understanding ◽  
Market Participants ◽  
Positive Attitudes ◽  
The Uk ◽  
Future Exchange

Summary: This article examines whether there is a connection between the attitudes of traders in the foreign exchange market and their expectations of future exchange rate developments. A psychological understanding of expectations is contrasted to the prevailing economic view of rational expectations. Findings are based on a questionnaire survey of 321 foreign exchange traders in Austria, Germany, Switzerland, and the UK. Factor analyses of semantic differential ratings of currencies result in three main factors on which currencies are evaluated. Foreign exchange traders of smaller countries (Austria, Switzerland) evaluate their home currency more positively than do other traders. Positive attitudes toward a currency correlate with expectations of currency appreciation. Social Identity Theory helps to explain the observed differences in evaluations of domestic currencies. In order to better understand financial markets, the economic assumption that expectations of market participants are unbiased and rational has to be replaced by a psychology of human market expectations.

Testing for rational bubbles in the UK housing market

2020 ◽  
pp. 1-14
Author(s):  
Xi Zhang ◽  
Renatas Kizys ◽  
Christos Floros ◽  
Konstantinos Gkillas ◽  
Mark E. Wohar
Keyword(s):  
Housing Market ◽  
Rational Bubbles ◽  
The Uk

Reply to “Rational Bubbles in UK Housing Markets”

Econometrica ◽  
2020 ◽  
Vol 88 (4) ◽  
pp. 1767-1770
Author(s):  
Stefano Giglio ◽  
Matteo Maggiori ◽  
Johannes Stroebel
Keyword(s):  
Rational Expectation ◽  
Housing Markets ◽  
Backward Induction ◽  
Information Frictions ◽  
Rational Bubbles ◽  
Market Participants ◽  
Housing Assets

In Giglio, Maggiori, and Stroebel (2016), we propose and implement a new test for classic rational bubbles. Such bubbles derive their value from each agent's rational expectation of being able to resell the bubble claims to the next agent. Backward induction ensures that classic rational bubbles can only exist on infinite‐maturity assets. Our empirical exercise shows that infinite‐maturity claims and 999‐year claims for otherwise identical housing assets trade at the same price, and thus rules out the presence of classic rational bubbles. Domeij and Ellingsen (DE) informally propose an alternative equilibrium of a bubble that they claim is consistent with our empirical findings. DE's bubble relies on information frictions such that market participants are unaware of the bubble. Our paper clearly excluded this type of bubble from the scope of our test, and DE's note thus has no implications for the validity of our test. Instead, DE's bubble simply represents one of many possible examples of bubbles on which our test was explicitly silent.

No-Bubble Condition: Model-Free Tests in Housing Markets

2014 ◽  
Author(s):  
Stefano Giglio ◽  
Matteo Maggiori ◽  
Johannes Stroebel
Keyword(s):  
Housing Markets ◽  
Condition Model ◽  
Model Free

scholarly journals No-Bubble Condition: Model-free Tests in Housing Markets

2014 ◽  
Author(s):  
Stefano Giglio ◽  
Matteo Maggiori ◽  
Johannes Stroebel
Keyword(s):  
Housing Markets ◽  
Condition Model ◽  
Model Free

Reference dependence in the UK housing market

2021 ◽  
pp. 1-29
Author(s):  
Helen X. H. Bao ◽  
Rufus Saunders
Keyword(s):  
Housing Market ◽  
Reference Dependence ◽  
The Uk

FORECASTING WITH A RATIONAL EXPECTATIONS MODEL OF THE UK*

2009 ◽  
Vol 47 (4) ◽  
pp. 311-336 ◽  
Author(s):  
Kent Matthews
Keyword(s):  
Rational Expectations ◽  
The Uk

scholarly journals Speculative housing markets and rent control: insights from nonlinear economic dynamics

2021 ◽  
Author(s):  
Noemi Schmitt ◽  
Frank Westerhoff
Keyword(s):  
Housing Market ◽  
Housing Stock ◽  
House Price ◽  
Housing Markets ◽  
Market Model ◽  
Market Dynamics ◽  
Rent Control ◽  
Forecasting Accuracy ◽  
Expectation Formation ◽  
Rent Level

AbstractWe propose a novel housing market model to explore the effectiveness of rent control. Our model reveals that the expectation formation and learning behavior of boundedly rational homebuyers, switching between extrapolative and regressive expectation rules subject to their past forecasting accuracy, may create endogenous housing market dynamics. We show that policymakers may use rent control to reduce the rent level, although such policies may have undesirable effects on the house price and the housing stock. However, we are also able to prove that well-designed rent control may help policymakers to stabilize housing market dynamics, even without creating housing market distortions.

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