Short-Term Buyers and Housing Market Dynamics
Published online: 1 November 2012
Springer Science+Business Media New York 2012
Abstract This study demonstrates that taking into account heterogeneous investment
horizons will improve our understanding of housing price and trading dynamics.
Using an OLG (Overlapping Generations) model in which agents have heterogeneous
preferences and investment horizons, with transaction costs, short term investors are
more sensitive to changes in economic fundamentals and are less likely to own (and
trade) in a declining market. The model predicts that the ownership composition
contains information about current and future house prices and trading dynamics.
Empirically, we find that home owners’ expected holding horizons co-vary negatively
with house prices, and they also predict future (short term) returns.
Keywords Trading volume
This paper studies the implication of agent heterogeneity on house prices and
transaction dynamics. Heterogeneous valuations arise because agents have different
J Real Estate Finan Econ (2014) 49:654–689
We thank Jonathan Berk, Shaun Bond, Thomas Davidoff, Yongheng Deng, Piet Eichholtz, David Geltner,
Dwight Jaffee, Tim Riddiough, Johan Walden, Nancy Wallace, Bernard Yeung and Erkan Yonder, as well
as seminar participants at the University of California, Berkeley, BGI, Concordia University, the research
symposium at Maastricht University, National University of Singapore, Rice University and Moody’s
KMV for helpful discussions and comments. Wenlan Qian is also affiliated with the Risk Management
Institute and the Institute of Real Estate Studies at the National University of Singapore, and acknowledges
the financial support from the academic research grant (R-315000-079-133) at the National University of
Singapore. All errors are ours alone.
Haas School of Business, University of California, Berkeley, CA 94720, USA
W. Qian (*)
Department of Finance, NUS Business School, National University of Singapore, 15 Kent Ridge
Drive, Singapore 119245, Singapore