Behavioral heterogeneity in the Australian housing market

We propose a heterogeneous agent model (HAM) of four groups of investors with Markov chain regime-dependent beliefs for the housing market. Within the Markov switching framework, we take into account how heterogeneous investors shift their trading behaviour in response to changes in housing market c...

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Bibliographic Details
Published in:Applied economics 2017-02, Vol.49 (9), p.872-885
Main Authors: Chia, Wai-Mun, Li, Mengling, Zheng, Huanhuan
Format: Article
Language:English
Subjects:
Australia
behavioural heterogeneity
heterogeneous agent model
Housing
housing market
Real estate sales
Regime switching
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Summary:We propose a heterogeneous agent model (HAM) of four groups of investors with Markov chain regime-dependent beliefs for the housing market. Within the Markov switching framework, we take into account how heterogeneous investors shift their trading behaviour in response to changes in housing market conditions. The model is estimated and compared with the benchmark rational expectation models using the Australian housing market data from 1982Q1 to 2013Q2. We find evidence of within- and between-group heterogeneity in the Australian housing market. We show that HAM with Markov switching beliefs provides a better in-sample estimation efficiency and outperforms the conventional rational expectation models in terms of out-of-sample prediction.
ISSN:0003-6846
1466-4283
DOI:10.1080/00036846.2016.1208355