@techreport{publications48402,
          volume = {23-1488},
           month = {November},
          author = {Patrick F{\`e}ve and Alban Moura},
          series = {TSE Working Paper},
       booktitle = {TSE Working Paper},
            type = {Working Paper},
         address = {Toulouse},
           title = {Frictionless house-price momentum},
       publisher = {TSE Working Paper},
            year = {2023},
     institution = {Universit{\'e} Toulouse Capitole},
        keywords = {house prices, momentum, AR(2) process, rational expectations, news shocks},
             url = {https://publications.ut-capitole.fr/id/eprint/48402/},
        abstract = {This paper establishes that frictionless, rational-expectations models driven by specific ARMA(2,1) forcing processes are consistent with equilibrium asset-price dynamics featuring momentum. To reach this result, we first document that AR(2) models adequately capture the cyclical dynamics found in U.S. house prices, in particular the strong positive first-order autocorrelation in their first difference. Then, we show analytically that ARMA(2,1) exogenous drivers give rise to equilibrium AR(2) asset-price dynamics in a simple present-value model. Our pen-and-paper approach yields a straightforward economic interpretation of the results, emphasizing the contribution of anticipated shocks to generating asset-price momentum. We document the empirical relevance of our theoretical results by estimating the model from house-price data. Our findings suggest that house-price momentum does not necessarily signal irrational exuberance or strong frictions in housing markets.}
}