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Fève, Patrick
and Moura, Alban
(2023)
Frictionless house-price momentum.
TSE Working Paper, n. 23-1488, Toulouse
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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.
| Item Type: | Monograph (Working Paper) |
|---|---|
| Language: | English |
| Date: | November 2023 |
| Place of Publication: | Toulouse |
| Uncontrolled Keywords: | house prices, momentum, AR(2) process, rational expectations, news shocks |
| JEL Classification: | C32 - Time-Series Models E32 - Business Fluctuations; Cycles G12 - Asset Pricing; Trading volume; Bond Interest Rates |
| Subjects: | B- ECONOMIE ET FINANCE |
| Divisions: | TSE-R (Toulouse) |
| Institution: | Université Toulouse Capitole |
| Site: | UT1 |
| Date Deposited: | 29 Nov 2023 08:39 |
| Last Modified: | 22 Nov 2024 16:28 |
| OAI Identifier: | oai:tse-fr.eu:128729 |
| URI: | https://publications.ut-capitole.fr/id/eprint/48402 |
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