Outshine to Outbid: Weather-Induced Sentiment and the Housing Market

73 Pages Posted: 18 Oct 2019

See all articles by Maggie Rong Hu

Maggie Rong Hu

Chinese University of Hong Kong

Adrian D. Lee

Deakin University - Department of Finance (Property and Real Estate); Financial Research Network (FIRN)

Date Written: October 9, 2019

Abstract

This paper examines how sentiment affects homebuyers’ housing transaction decisions with a focus on auction sales. Utilizing housing transaction data in Sydney from 2000 to 2014, we find that transaction prices are significantly higher for auction sales compared to private sales, consistent with the notion of ‘winner’s curse’. Four sentiment proxies, including three weather-based sentiment proxies and a survey-based sentiment index, are used to derive novel measures of sentiment, revealing that higher sentiment is associated with higher transaction price, particularly for auction sales. Moreover, sentiment boosts sale prices particularly when the housing market is in boom; however, investors are not more prone to sentiment bias than owner-occupiers. Sentiment exhibits an asymmetric effect in that low sentiment dampens price to a greater extent compared to the price-boosting effect of high sentiment. Our result is robust to using national sport events as sentiment shocks, selection bias, and participation constraints. Potential mechanisms include present-biased preferences and sentiment related projection bias. Overall, our evidence sheds light on the role of sentiment in housing market decisions.

Keywords: auction, sentiment, weather, housing price, behavioral bias

JEL Classification: D03, D14, R21

Suggested Citation

Hu, Maggie Rong and Lee, Adrian D., Outshine to Outbid: Weather-Induced Sentiment and the Housing Market (October 9, 2019). Available at SSRN: https://ssrn.com/abstract=3466568 or http://dx.doi.org/10.2139/ssrn.3466568

Maggie Rong Hu (Contact Author)

Chinese University of Hong Kong ( email )

Cheng Yu Tung Building
12 Chak Cheung Street
Hong Kong, N.T.
Hong Kong

Adrian D. Lee

Deakin University - Department of Finance (Property and Real Estate) ( email )

70 Elgar Road
Melbourne, VIC 3125
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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