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Study of Informational Cascades in Municipal Housing Demand of Iran

Shafiee Poor Fard, Ehsan | 2011

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  1. Type of Document: M.Sc. Thesis
  2. Language: Farsi
  3. Document No: 42218 (44)
  4. University: Sharif University of Technology
  5. Department: Management and Economics
  6. Advisor(s): Sepahvand, Mehrdad
  7. Abstract:
  8. Real estate section is an integral part of any economy whose cycles have considerable effects on other different markets. It attracts much attention by various economy agents for different reasons. However, some specific features of the market render it prone to consecutive boom-bust cycles. Some of these features are originated from fundamental traits and especially building process and production technology of housing. Also, taking into account that real estate is considered an important asset; it is vulnerable to another factor which even exacerbates the cycles. This factor -Information cascade- makes cycles more unstable by causing "Herd behavior" which is the subject of study in this thesis. The thesis includes three sections. In the first section, we review some theoretical models backing such a behavior in the market. A model with rational consumers is introduced first to show how a decision of rational agents with partial information can be affected by observing others’ choices. This can cause some kind of convergence in the group's behavior which encompasses the notion of herding. Then we review how the impact of this convergence is tracked in financial indices. In the second section, empirical studies in this area are reviewed. In contrast to the vast variety of areas explored, same concept is used to identify this type of decision making behavior. Path-dependency of indices is the key common feature in all of these studies. In the third section, we take a panel of housing market indices constituting some data e.g number of transactions, price index and rent for seventeen large municipal markets of Iran over thirteen years. We test the zero hypothesis of "no herding possibility" for information cascade within these cities. Also, we test the same hypothesis for information cascade in other municipal markets with respect to Tehran. All these are done by considering the coefficient of delayed number of transactions in the equation for current number of transactions after controlling for fundamental contributes.

  9. Keywords:
  10. Housing Market ; Herd Behavior ; Convergence ; Information Cascade ; Price Bable

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