Reference Points Spillovers: Micro-Level Evidence from Real Estate

68 Pages Posted: 14 Jul 2021 Last revised: 7 Feb 2023

See all articles by Marco Giacoletti

Marco Giacoletti

Marshall School of Business

Christopher A. Parsons

Marshall School of Business, University of Southern California

Date Written: June 28, 2021

Abstract

Homeowners who originally bought when market-wide price levels were high (low) fetch high (low) sales prices and rents, even decades later. We study the propagation of such reference-dependence to neighboring listings. The ``spillover'' reference-point effect is about one-half as large as the ``own'' reference-point effect. Neither house quality nor location appears capable of explaining the result. Using a simple model to provide empirical predictions, we find support for a competition-based mechanism. We quantify the aggregate effect of own and spillover reference point effects on aggregate prices and/or rents at the zip code level.

Keywords: Spillovers, Reference Points, Behavioral Biases, House Prices, Rents

Suggested Citation

Giacoletti, Marco and Parsons, Christopher A., Reference Points Spillovers: Micro-Level Evidence from Real Estate (June 28, 2021). Available at SSRN: https://ssrn.com/abstract=3875752 or http://dx.doi.org/10.2139/ssrn.3875752

Marco Giacoletti (Contact Author)

Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA California 90089
United States

Christopher A. Parsons

Marshall School of Business, University of Southern California ( email )

3670 Trousdale Pkwy
Los Angeles, CA 90089
United States

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