Short Term Buyers and Housing Market Dynamics
45 Pages Posted: 12 Sep 2008 Last revised: 1 Feb 2012
Date Written: October 1, 2011
Abstract
This study shows that taking into consideration heterogeneous investment horizons improves our understanding of price and trading dynamics.We develop an OLG model in which agents have heterogeneous preferences and investment horizons. With transaction costs, short term investors are more sensitive to changes in 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 price and trading dynamics. Empirically we find that owners' expected holding horizons co-vary negatively with prices, and they also predict future (short term) returns.
Keywords: transaction cost, trading volume, return predictability, housing market, short term investors
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