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    House Prices, Fundamentals and Bubbles

    Access Status
    Fulltext not available
    Authors
    Black, A.
    Fraser, Patricia
    Hoesli, M.
    Date
    2006
    Type
    Journal Article
    
    Metadata
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    Citation
    Black, A. and Fraser, P. and Hoesli, M. 2006. House Prices, Fundamentals and Bubbles. Journal of Business Finance and Accounting. 33 (9-10): pp. 1535-1555.
    Source Title
    Journal of Business Finance and Accounting
    DOI
    10.1111/j.1468-5957.2006.00638.x
    ISSN
    0306-686X
    URI
    http://hdl.handle.net/20.500.11937/3321
    Collection
    • Curtin Research Publications
    Abstract

    This paper studies actual (real) house prices relative to fundamental (real) house values. Such a focus is warranted since housing constitutes a large fraction of most household portfolios, and its characteristics are such that, in contrast to what prevails in financial markets, arbitrage will be limited and hence correction toward ‘true’ value is likely to be a prolonged process. Using UK data and a time-varying present value approach, our results preclude the existence of an explosive rational bubble due to non-fundamental factors. We further find that intrinsic bubbles have an important role to play in determining actual house prices although price dynamics appear to impact, particularly in periods of strong deviation from fundamental value. Price dynamics are found to be driven by momentum behaviour.

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