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The Big Short: Short Selling Activity and Predictability in House Prices

50 Pages Posted: 1 Dec 2010 Last revised: 29 Sep 2016

Pedro A. C. Saffi

University of Cambridge - Judge Business School

Carles Vergara-Alert

University of Navarra - IESE Business School

Date Written: September 28, 2016

Abstract

We study how investors use financial securities to speculate on the decrease of house prices. Unlike most asset types, houses are subject to high trading frictions and cannot be sold short. Using U.S. data from 2006 to 2013, we find evidence that an increase in the short selling activity of real estate investment trusts (REITs) forecasts a decrease in house prices in the subsequent month. The magnitude and significance of this effect vary with the geographical location of the REITs' underlying properties and with the state of the business cycle.

Keywords: Housing prices, short sales, financial crisis, equity lending, REITs

JEL Classification: G10, G11, G14, G17

Suggested Citation

Saffi, Pedro A. C. and Vergara-Alert, Carles, The Big Short: Short Selling Activity and Predictability in House Prices (September 28, 2016). 46th Annual AREUEA Conference Paper. Available at SSRN: https://ssrn.com/abstract=1716998 or http://dx.doi.org/10.2139/ssrn.1716998

Pedro A. C. Saffi

University of Cambridge - Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom

HOME PAGE: http://www.pedrosaffi.com

Carles Vergara-Alert (Contact Author)

University of Navarra - IESE Business School ( email )

Av. Pearson 21
Barcelona, 08034
Spain
+34 932544200 (Phone)
+34 932534343 (Fax)

HOME PAGE: http://web.iese.edu/cvergara/

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