Real estate prices: An international study of seasonality's sentiment effect

Guy Kaplanski, Haim Levy

Research output: Contribution to journalArticlepeer-review

24 Scopus citations

Abstract

The current study shows that real estate prices in several countries reveal a significant and persistent seasonality, where the highest rates of return are obtained in the spring and early summer, and the lowest rates of return are obtained in the fall. This seasonality is explained by a joint effect of the change in the number of daylight hours and the latitude of the area zone under consideration. Notably, latitude affects real estate prices above and beyond the effect of the change in the number of daylight hours, which by itself is a function of latitude. This joint effect is robust to the two explanations for seasonality given in the literature: the Matching Theory and the Bargaining Power Hypothesis, as well as to several macroeconomic variables. The effect also conforms to the well-known Seasonal Affective Disorder (SAD), which has been found in other studies to affect people's health, their risk attitude, and consequently their risk perception and investment decisions which, in turn, affect asset prices.

Original languageEnglish
Pages (from-to)123-146
Number of pages24
JournalJournal of Empirical Finance
Volume19
Issue number1
DOIs
StatePublished - Jan 2012

Bibliographical note

Funding Information:
The authors acknowledge the helpful comments of the editor, Richard Baillie, and the anonymous referee. We wish to thank Mark Kamstra, Lisa Kramer, and Maurice Levi, for their helpful comments and for kindly providing us with their Onset/Recovery dataset. We thank the National Association of Realtors® (NAR), the Standard & Poor, Fiserv and Macro Markets LLC (Case–Shiller), and the Office of Federal Housing Enterprise Oversight (OFHEO) for making their datasets available to us in this study. We thank the Kruger Center for Finance of the Hebrew University for its financial support.

Keywords

  • Behavioral economics
  • Market sentiment
  • Prices' seasonality
  • Real estate prices

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