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Empirical Analyses of Factors Shaping the Relationship between Housing Price and Trading Volume based on Bounded Rationality

Dongha PARK 1,  Mack Joong Choi 1

1서울대학교

Accredited

ABSTRACT

This paper aims to empirically illuminate the reason of the positive relationship between housing price and trading volume, one of anomalies in real estate market which cannot be explained by traditional economic theory presuming the rationality of human being, from a standpoint of bounded rationality. Based on the micro survey data on housing consumption psychology collected from the first quarter of 2011 to the second quarter of 2015, it investigates the relationship between each respondent’s recognized and predicted scales of quarterly housing price change and its difference between housing owners (potential sellers) and renters (potential buyers) as well as its difference between the periods of price increase and decrease, employing the spline regression model. Three major findings are as follows. First, a positive relationship is found between the recognized and predicted scales of quarterly housing price change, implying that adaptive expectation prevails, compared to rational expectation. Second, wishful thinking is also detected because the owners (renters) predict relatively smaller (larger) decrease in the period of price depreciation, but larger (smaller) increase in the period of price appreciation. As the result the predicted scale of the owners is higher than that of the renters in both periods of price depreciation and appreciation, but the difference is relatively much larger when the price decreases than when it increases. This is the third and the most important finding that verifies the existence of loss aversion of sellers, which causes the asymmetry characterized by small (large) trading volume coupled with price decrease (increase).

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