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http://ssrn.com/abstract=2437563
 
 

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No-Bubble Condition: Model-Free Tests in Housing Markets


Stefano Giglio


University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Matteo Maggiori


Harvard University; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Johannes Stroebel


New York University (NYU)

May 15, 2014

Fama-Miller Working Paper

Abstract:     
We test for the existence of infinitely-lived bubbles in housing markets by directly measuring failures of the pricing condition requiring the present value of infinite-maturity payments to be zero. This condition is central to workhorse models of bubbles. In the U.K. and Singapore, property ownership takes the form of either leaseholds or freeholds. Leaseholds are finite-maturity ownership contracts with maturities often exceeding 700 years; freeholds are perpetual contracts. The price difference between long-maturity leaseholds and freeholds reflects the present value of the freehold after leasehold expiry, thus directly measuring the no-bubble condition. We find no evidence of infinitely-lived bubbles.

Number of Pages in PDF File: 26

Keywords: Asset Pricing, Real Estate, Efficient Market Hypothesis, Behavioral Economics, Irrational Exuberance

JEL Classification: E44, G02, G12, G14, R30

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Date posted: May 17, 2014 ; Last revised: September 12, 2014

Suggested Citation

Giglio, Stefano and Maggiori, Matteo and Stroebel, Johannes, No-Bubble Condition: Model-Free Tests in Housing Markets (May 15, 2014). Fama-Miller Working Paper. Available at SSRN: http://ssrn.com/abstract=2437563 or http://dx.doi.org/10.2139/ssrn.2437563

Contact Information

Stefano Giglio
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Matteo Maggiori
Harvard University ( email )
1875 Cambridge Street
Cambridge, MA 02138
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Johannes Stroebel (Contact Author)
New York University (NYU) ( email )
Bobst Library, E-resource Acquisitions
20 Cooper Square 3rd Floor
New York, NY 10003-711
United States
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