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Overconfidence and real estate research



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Li, Haotong 


Real estate markets have recently been rapidly advancing in both volume and complexity. A sound understanding of behavioural biases in this sector benefits all stakeholders, such as investors, regulators, and local residents. I focus on one of the most robust behavioural anomalies in business and finance research: overconfidence. Overconfidence significantly influences financial decisions and investment performance. However, theoretical and empirical studies are lacking in the real estate sector. In this thesis, I first conduct a critical review of the overconfidence literature, identify future research directions for the study of overconfidence in real estate markets and recommend strategies for handling technical issues, such as robustness of overconfidence measurement and data availability. I then explore overconfidence of three types of participants in real estate markets, namely, investors, managers and homebuyers. I find that overconfidence plays an important role for all the three actors. Investors attribute too much of investment gains to their ability and become overconfident in subsequent periods, which lead to a strong trading volume response to market returns at the aggregate level. Overconfident managers tend to invest more in risky and long-term projects such as those related to corporate social responsibility (CSR). However, the financial premium of CSR is lower than it should be for firms with such managers. In housing markets with overconfident homebuyers, the trading volume response to economic policy uncertainty is less significant compared with those with non-overconfident homebuyers. Findings in the three fields provide useful implications for researchers and practitioners on overconfidence studies in real estate research.





Bao, Helen


Behavioural finance, Overconfidence, Real estate


Doctor of Philosophy (PhD)

Awarding Institution

University of Cambridge
CSC Cambridge Scholarship