Do People Overreact? Evidence from the Housing Market After the Wenchuan Earthquake / Guoying Deng, Li Gan, Manuel A. Hernandez.

Format:

Book

Author/Creator:

Deng, Guoying.

Contributor:

National Bureau of Economic Research.

Gan, Li.

Hernandez, Manuel A.

Series:

Working Paper Series (National Bureau of Economic Research) no. w19515.

NBER working paper series no. w19515

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2013.

Summary:

This paper uses the 2008 Wenchuan earthquake in China as a natural experiment to examine how the housing market reacted to this unforeseen, extreme event. We use a unique transaction dataset for new (under construction) apartment units to analyze the pricing behavior of units in lower versus upper floors before and after the earthquake. We observe that average housing prices decreased after the tremor. However, the relative price of low to high floor units, particularly units located in the first and second floor, considerably increased for several months after the earthquake. This relative pricing pattern is in line with a higher risk perception and fear, triggered after the tremor, of living in upper floors. Additional robustness checks support the apparent overreaction of individuals to a dramatic event.

Notes:

Print version record

October 2013.