What Makes Housing Owners Hold?
17 Pages Posted: 11 Sep 2008
Date Written: September 10, 2008
Many financial studies have produced evidence of the disposition effect - investors tend to sell assets with nominal gains and keep those with nominal losses. This effect is predominantly explained by the prospect theory, which postulates asymmetric preferences towards gains against losses. This study aims to examine what factors determine housing owners to hold. We postulate that holding period is a function of 1) household characteristics, 2) property attributes, and 3) disposition effect of nominal gain or loss. These postulates are tested empirically by a panel data set of housing transactions in one of the largest estate in Hong Kong of 15,235 transactions from 1991 to 2005. The results show that losers tend to hold 32 months longer than winners, but this magnitude is found to be much longer than other similar studies in securities trading. We contend that moving costs and asymmetric information in housing markets is responsible for such a difference.
Keywords: Disposition Effect, Prospect Theory, Holding Period, Housing Markets
JEL Classification: D12
Suggested Citation: Suggested Citation