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Fève, Patrick
and Moura, Alban
(2024)
Frictionless house-price momentum.
Journal of Economic Dynamics and Control, vol. 168.
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Abstract
This paper establishes that frictionless, rational-expectations models driven by specific ARMA(2,1) processes can produce equilibrium asset-price momentum, defined as persistent movements in asset-price changes. To demonstrate this, we first document that AR(2) models adequately capture the dynamics observed in U.S. house prices, particularly the strong persistence of their first differences. Next, we show that ARMA(2,1) dividends can lead to equilibrium AR(2) asset-price dynamics within a simple present-value model. Our analytical approach provides an economic interpretation of the results, highlighting the role of anticipated shocks. Finally, we document the empirical plausibility of our theory by estimating the model using house-price data. Our analysis suggests that house-price momentum does not necessarily signal irrational exuberance or significant frictions in housing markets.
| Item Type: | Article |
|---|---|
| Language: | English |
| Date: | November 2024 |
| Refereed: | Yes |
| Place of Publication: | Amsterdam |
| 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) |
| Site: | UT1 |
| Date Deposited: | 29 Nov 2024 08:28 |
| Last Modified: | 06 Dec 2024 12:56 |
| OAI Identifier: | oai:tse-fr.eu:129931 |
| URI: | https://publications.ut-capitole.fr/id/eprint/49874 |
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Frictionless house-price momentum. (deposited 29 Nov 2023 08:39)
- Frictionless house-price momentum. (deposited 29 Nov 2024 08:28) [Currently Displayed]
