Frothy Housing Markets and Local Stock-Price Movements

Frothy Housing Markets and Local Stock-Price Movements Prior empirical research finds habitat effects manifest in stock pricing among firms that share headquarters cities. We empirically investigate whether trends in residential real estate prices affect headquarters-city stock pricing phenomena for companies across U.S. metro areas for 1989–2004. Specifically, we hypothesize that stocks of firms headquartered in ‘hot’ residential real estate markets experience higher returns compared to stocks of firms from ‘cold’ markets. We also hypothesize that stocks of firms headquartered in hot real estate markets display stronger return comovement with same-city stocks. We find support for these hypotheses during the 1999–2004 sample period which coincides with the start of the housing bubble of the 2000 s; we find mixed results in earlier periods. Our findings indicate that city-specific home price patterns conditionally affect stock pricing of local firms, suggesting that investor behavior is influenced by localized shocks to household real estate wealth. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Real Estate Finance and Economics Springer Journals

Frothy Housing Markets and Local Stock-Price Movements

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Publisher
Springer US
Copyright
Copyright © 2010 by Springer Science+Business Media, LLC
Subject
Economics; Regional/Spatial Science; Financial Services
ISSN
0895-5638
eISSN
1573-045X
D.O.I.
10.1007/s11146-010-9272-1
Publisher site
See Article on Publisher Site

Abstract

Prior empirical research finds habitat effects manifest in stock pricing among firms that share headquarters cities. We empirically investigate whether trends in residential real estate prices affect headquarters-city stock pricing phenomena for companies across U.S. metro areas for 1989–2004. Specifically, we hypothesize that stocks of firms headquartered in ‘hot’ residential real estate markets experience higher returns compared to stocks of firms from ‘cold’ markets. We also hypothesize that stocks of firms headquartered in hot real estate markets display stronger return comovement with same-city stocks. We find support for these hypotheses during the 1999–2004 sample period which coincides with the start of the housing bubble of the 2000 s; we find mixed results in earlier periods. Our findings indicate that city-specific home price patterns conditionally affect stock pricing of local firms, suggesting that investor behavior is influenced by localized shocks to household real estate wealth.

Journal

The Journal of Real Estate Finance and EconomicsSpringer Journals

Published: Sep 14, 2010

References

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