Assymetric Information and the Predictability of Real Estate Returns

Posted: 5 Nov 1999

See all articles by Michael J. Cooper

Michael J. Cooper

University of Utah - David Eccles School of Business

David H. Downs

Virginia Commonwealth University (VCU) - Department of Finance, Insurance & Real Estate; The Kornblau Institute

Gary A. Patterson

University of South Florida

Abstract

This paper examines the relation between systematic price changes and the heterogeneity of investors' information sets in real estate asset markets. The empirical implications rely on a theoretical economy in which information asymmetry alters the dynamic relation between returns and trading volume. We employ a filter-rule methodology to determine predictability in returns and augment the return-based conditioning set with trading volume. The additional conditioning information is necessary since the model is underspecified when predictability is based on returns alone. Our results provide new insight into the co-existence of informational and non-informational exchange in the speculative markets for real estate assets. Specifically, we find that the predictability of real estate returns is generally more indicative of portfolio rebalancing effects than an adverse selection problem. Importantly, these results are unique in addressing the time-variation in information asymmetry.

JEL Classification: G12

Suggested Citation

Cooper, Michael J. and Downs, David H. and Patterson, Gary A., Assymetric Information and the Predictability of Real Estate Returns. Available at SSRN: https://ssrn.com/abstract=181631

Michael J. Cooper (Contact Author)

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

David H. Downs

Virginia Commonwealth University (VCU) - Department of Finance, Insurance & Real Estate ( email )

Richmond, VA 23284-4000
United States

The Kornblau Institute ( email )

Richmond, VA 23284-4000
United States

Gary A. Patterson

University of South Florida ( email )

Tampa, FL 33620
United States

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