Explaining Asset Mispricing Using the Resale Option and Inflation Illusion

32 Pages Posted: 26 May 2011

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: Summer 2011

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.

Suggested Citation

Hayunga, Darren K. and Lung, Peter P., Explaining Asset Mispricing Using the Resale Option and Inflation Illusion (Summer 2011). Real Estate Economics, Vol. 39, Issue 2, pp. 313-344, 2011, Available at SSRN: https://ssrn.com/abstract=1853122 or http://dx.doi.org/10.1111/j.1540-6229.2010.00297.x

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

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
3
Abstract Views
561
PlumX Metrics