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Testing for Information Asymmetries in Real Estate Markets

Pablo D. Kurlat

Stanford University - Department of Economics

Johannes Stroebel

New York University (NYU); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

October 2014

We study equilibrium outcomes in markets with asymmetric information about asset values among both buyers and sellers. In residential real estate markets hard-to-observe neighborhood characteristics are a key source of information heterogeneity: sellers are usually better informed about neighborhood values than buyers, but there are some sellers and some buyers that are better informed than their peers. We propose a new theoretical framework for analyzing such markets with many heterogeneous assets and differentially informed agents. Consistent with the predictions from this framework, we find that changes in the seller composition towards (i) more informed sellers and (ii) sellers with a larger supply elasticity predict subsequent house-price declines and demographic changes in that neighborhood. This effect is larger for houses whose value depends more on neighborhood characteristics, and smaller for houses bought by more informed buyers. Our findings suggest that home owners have superior information about important neighborhood characteristics, and exploit this information to time local market movements.

Number of Pages in PDF File: 59

Keywords: Asymmetric Information, Housing Market, Insider Trading, Competitive Equilibrium, Gentrification

JEL Classification: G14, R21, R32, D53, D82

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Date posted: November 19, 2013 ; Last revised: November 3, 2014

Suggested Citation

Kurlat, Pablo D. and Stroebel, Johannes, Testing for Information Asymmetries in Real Estate Markets (October 2014). Available at SSRN: https://ssrn.com/abstract=2357112 or http://dx.doi.org/10.2139/ssrn.2357112

Contact Information

Pablo D. Kurlat
Stanford University - Department of Economics ( email )
Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States
Johannes Stroebel (Contact Author)
New York University (NYU) ( email )
Bobst Library, E-resource Acquisitions
20 Cooper Square 3rd Floor
New York, NY 10003-711
United States
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Centre for Economic Policy Research (CEPR) ( email )
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
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