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Please use this identifier to cite or link to this item: http://hdl.handle.net/2164/49

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Title: House prices, fundamentals and bubbles
Authors: Black, Angela
Fraser, Patricia
Hoesli, Martin
Keywords: real house prices
real disposable income
time-varying risk
bubbles
present value
fundamentals
Issue Date: 31-Jan-2006
Series/Report no.: Business School Working Paper Series
2006-02
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 by driven by momentum behaviour.
URI: http://hdl.handle.net/2164/49
ISSN: ISSN 0143-4543
Appears in Collections:Business research
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