Realization Utility and Real Estate

40 Pages Posted: 14 Oct 2014 Last revised: 29 Apr 2016

See all articles by Dong Hong

Dong Hong

Singapore Management University - Lee Kong Chian School of Business

Roger Loh

Singapore Management University - Lee Kong Chian School of Business

Mitch Warachka

University of San Diego

Date Written: April 25, 2016

Abstract

Using unique real estate data that allows for accurately-measured capital gains, we examine whether sell propensities and selling prices depend on an owner's capital gain. We find that sell propensities are higher and selling prices are lower for properties with a capital gain, with the sell propensities experiencing a discontinuity at a zero capital gain. Consistent with realization utility (Barberis and Xiong, 2012), larger capital gains are associated with higher sell propensities and lower selling prices. Overall, our evidence provides empirical support for realization utility, while alternative explanations such as financing constraints and informed trading cannot explain our findings.

Keywords: Real Estate, Disposition Effect, Realization Utility

JEL Classification: G2, G11, R21

Suggested Citation

Hong, Dong and Loh, Roger and Warachka, Mitch, Realization Utility and Real Estate (April 25, 2016). Available at SSRN: https://ssrn.com/abstract=2509599 or http://dx.doi.org/10.2139/ssrn.2509599

Dong Hong

Singapore Management University - Lee Kong Chian School of Business ( email )

50 Stamford Road
178899
Singapore

Roger Loh (Contact Author)

Singapore Management University - Lee Kong Chian School of Business ( email )

Lee Kong Chian School of Business
50 Stamford Rd
Singapore, 178899
Singapore

HOME PAGE: http://www.mysmu.edu/faculty/rogerloh/

Mitch Warachka

University of San Diego ( email )

5998 Alcala Park
University of San Diego
San Diego, CA 92110-2492
United States

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