The big short: short selling activity and predictability in house prices
Chauffaille Saffi, PA
Real Estate Economics
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Chauffaille Saffi, P., & Vergara-Alert, C. (2020). The big short: short selling activity and predictability in house prices. Real Estate Economics, 48 (4), 1030-1073. https://doi.org/10.1111/1540-6229.12219
We study how investors can use financial securities to speculate on the decrease of house prices. Unlike most asset types, houses are subject to high trading frictions and cannot be sold short directly. Using U.S. equity lending data from 2006 through 2013, we find evidence that an increase in the short selling activity of real estate investment trusts (REITs) forecasts a decrease in house prices in the subsequent month. The magnitude and significance of this effect vary with the geographical location of the REITs' underlying properties and with the housing cycle.
Safﬁ acknowledges the ﬁnancial support provided by the Cambridge Endownment for Research in Finance (CERF) and Vergara-Alert the support of the Public-Private Sector Research Center at IESE, the Spanish Ministry of Economy and Competitiveness (Ref. ECO2015-63711-P), and AGAUR (Project ref: 2014-SGR-1496).
External DOI: https://doi.org/10.1111/1540-6229.12219
This record's URL: https://www.repository.cam.ac.uk/handle/1810/269580