The Impact of UK Household Overconfidence in Public Information on House Prices

Posted: 27 May 2016 Last revised: 24 Aug 2021

See all articles by Soosung Hwang

Soosung Hwang

Sungkyunkwan University - Department of Economics

Youngha Cho

Oxford Brookes University

Jinho Shin

Kakaobank; Sungkyunkwan University - Department of Economics

Date Written: June 8, 2020

Abstract

We investigate if house prices are affected by overconfidence of households who predict house prices using imperfect public information about economic outlook. For this purpose, we develop a new measure of household overconfidence in the Bayesian framework. For the three variables we test – changes in consumption, stock returns, and changes in human capital, we find that UK households were overconfident about the signals of consumption regardless of regions. However, households in London were overconfident about the signals of stock markets whereas those remote from London were overconfident about the signals of human capital. The results of household overconfidence appear positive in the UK housing market for our sample period from 1980 to 2018, in particular, 0.5% per quarter in London.

Keywords: Overconfidence; Public Signals; Households; House Prices; Bayesian Updating

JEL Classification: R3, G12

Suggested Citation

Hwang, Soosung and Cho, Youngha and Shin, Jinho, The Impact of UK Household Overconfidence in Public Information on House Prices (June 8, 2020). Available at SSRN: https://ssrn.com/abstract=2784688 or http://dx.doi.org/10.2139/ssrn.2784688

Soosung Hwang

Sungkyunkwan University - Department of Economics ( email )

25-2, Sungkyunkwan-ro
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Seoul, 03063
+82 (0)2 760 0489 (Phone)
+82 (0)2 744 5717 (Fax)

HOME PAGE: http://sites.google.com/view/soosunghwang

Youngha Cho

Oxford Brookes University ( email )

Gipsy Lane
Oxford, Oxon OX3 0BP
United Kingdom
44-1865-483941 (Phone)
44-1865-483927 (Fax)

Jinho Shin (Contact Author)

Kakaobank ( email )

5F H-Square S, 680
Sampyung-dong
Sungnam-si, Kyeonggi-do
Korea, Republic of (South Korea)

Sungkyunkwan University - Department of Economics ( email )

53 Myeongnyun-Dong 3-Ga
Jongno-Gu
Seoul, 110-745
Korea, Republic of (South Korea)
+82 (0)2 3788 2334 (Phone)

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