Explaining Asset Mispricing Using the Resale Option and Inflation Illusion

Posted: 31 Aug 2010 Last revised: 30 Dec 2013

See all articles by Darren K. Hayunga

Darren K. Hayunga

University of Georgia - Department of Insurance, Legal Studies, Real Estate

Peter P. Lung

University of Texas at Arlington

Multiple version iconThere are 3 versions of this paper

Date Written: March 29, 2010

Abstract

We investigate the overconfidence theory and inflation illusion hypothesis of asset mispricing. Both concepts address subjective asset valuation but place the impetus on differing explanations within the standard dividend-growth model. We find that one of the theoretical outcomes of overconfidence – asset turnover – consistently explains mispricing in U.S. housing markets. Further, we find that asset turnover subsumes expected inflation in certain specifications; suggesting that dispersion in investors’ beliefs is a better explanation of asset mispricing than the investors’ inability to properly discount future cash flows.

Keywords: Asset Mispricing, Heterogeneous Beliefs, Resale Option, Overconfidence Theory, Inflation Illusion, Money-Illusion, Asset Turnover

Suggested Citation

Hayunga, Darren K. and Lung, Peter P., Explaining Asset Mispricing Using the Resale Option and Inflation Illusion (March 29, 2010). Real Estate Economics, Forthcoming , Available at SSRN: https://ssrn.com/abstract=1668869

Darren K. Hayunga (Contact Author)

University of Georgia - Department of Insurance, Legal Studies, Real Estate ( email )

Athens, GA 30602-6254
United States
706-542-1365 (Phone)

Peter P. Lung

University of Texas at Arlington ( email )

415 S West St Apt no 205
Arlington, TX 76019
United States

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