Identifying the effects of “flights to safety” on asset prices using pure time-series methods is difficult because crises are infrequent. We develop a new cross-sectional identification approach, ...motivated by the insight that investors may differ in their “preferred habitats” within a broad asset class. We apply the method to the question of whether foreign capital is responsible for residential real estate price movements in global cities such as London and New York, especially during crises. Using large data sets of housing transactions, we find that foreign risk strongly affects London house prices. The effects are long-lasting, and are associated with both safe-haven effects and immigration.
International Comparative Household Finance Badarinza, Cristian; Campbell, John Y; Ramadorai, Tarun
Annual review of economics,
01/2016, Letnik:
8, Številka:
1
Journal Article
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This article reviews the literature on international comparative household finance. It presents summary statistics on household balance sheets for 13 developed countries and uses these statistics to ...discuss common features and contrasts across countries. It then discusses retirement savings, investments in risky assets, unsecured debt, and mortgages.
Reference Dependence in the Housing Market Andersen, Steffen; Badarinza, Cristian; Liu, Lu ...
The American economic review,
10/2022, Letnik:
112, Številka:
10
Journal Article
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We quantify reference dependence and loss aversion in the housing market using rich Danish administrative data. Our structural model includes loss aversion, reference dependence, financial ...constraints, and a sale decision, and matches key nonparametric moments, including a “hockey stick” in listing prices with nominal gains, and bunching at zero realized nominal gains. Households derive substantial utility from gains over the original house purchase price; losses affect households roughly 2.5 times more than gains. The model helps explain the positive correlation between aggregate house prices and turnover, but cannot explain visible attenuation in reference dependence when households are more financially constrained. (JEL D12, D91, G51, R21, R31)
We propose a new explanation for the persistence of gravity in international investment flows based on new facts about large cross-border commercial real estate transactions. Buyers in these ...transactions preferentially match with counterparties from own or proximate countries; such affinity-based matching helps alleviate financial investment frictions. We set up and structurally estimate a model of capital allocation in a decentralized market with an investment friction, which delivers the price, volume, and counterparty matching patterns in the data. The model shows that if clusters of high-affinity counterparties lie along historical routes, as in the data, preferential matching can perpetuate gravity relationships.
In an attempt to keep up with the social standards defined by their peer group, households can use long-term collateralized lending to finance purchases of goods that signal social value – most ...notably, real estate. Because in the social status game somebody's advance is always somebody else's regress, this behavior can lead to inefficient allocations, making the economy as a whole more financially vulnerable. In this paper, we show that prudential policy taking the form of collateral constraints can mitigate the negative consequences of social arms races, and potentially improve household welfare. We introduce preferences for social status in a calibrated life cycle framework with heterogeneous agents, and find that positional concerns lead to a higher build-up of debt and a net loss of resources. In equilibrium, the optimal collateral policy results from the trade-off between a usual purely distortionary effect, and the negative social externalities of over-borrowing.
The relative popularity of adjustable-rate mortgages (ARMs) and fixed-rate mortgages (FRMs) varies considerably both across countries and over time. We ask how movements in current and expected ...future interest rates affect the share of ARMs in total mortgage issuance. Using a nine-country panel and instrumental variables methods, we present evidence that near-term (one-year) rational forecasts of future movements in ARM rates do affect mortgage choice, particularly in more recent data since 2001. However, longer-term (three-year) rational forecasts of ARM rates have a relatively weak effect, and the current spread between FRM and ARM rates also matters, suggesting that households are concerned with current interest costs as well as with lifetime cost minimization. These conclusions are robust to alternative (adaptive and survey-based) models of household expectations.
Data, the online appendix, and the institutional appendix are available at
https://doi.org/10.1287/mnsc.2016.2629
.
This paper was accepted by Amit Seru, finance.
Gravity models excel at explaining international trade and investment flows; their success poses a continuing puzzle. In a comprehensive dataset of global commercial real-estate investments, we find ...that the role of distance in the gravity model is well-explained by preferential matching between counterparties of the same nationality. This tendency for same-country matching is widespread, robust, and increases in poorly-governed locations. We structurally estimate an equilibrium matching model with a friction affecting different-nationality transactions. The model explains the persistent success of gravity using a combination of this friction and the spatial distribution of same-nationality counterparties, which is well-predicted by current and historical linguistic, cultural, and trade links between countries.
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