Asymmetric response of demand-supply mismatch to investor's sentiment

Gianluca Marcato, Anupam Nanda

Research output: Working paper


We look through both the demand and supply side information to understand dynamics of price determination in the real estate market and examine how accurately investors? attitudes predict the market returns and thereby flagging off extent of any demand-supply mismatch. Our hypothesis is based on the possibility that investors? call for action in terms of their buy/sell decision and adjustment in reservation/offer prices may indicate impending demand-supply imbalances in the market. In the process, we study several real estate sectors to inform our analysis. The timeframe of our analysis (1995-2010) allows us to observe market dynamics over several economic cycles and in various stages of those cycles. Additionally, we also seek to understand how investors? attitude or the sentiment affects the market activity over the cycles through asymmetric responses. We test our hypothesis variously using a number of measures of market activity and attitude indicators within several model specifications. The empirical models are estimated using Vector Error Correction framework. Our analysis suggests that investors? attitude exert strong and statistically significant feedback effects in price determination. Moreover, these effects do reveal heterogeneous responses across the real estate sectors. Interestingly, our results indicate the asymmetric responses during boom, normal and recessionary periods. These results are consistent with the theoretical underpinnings.
Original languageUndefined
Place of PublicationReading
PublisherUniversity of Reading
Publication statusPublished - 1 Mar 2012

Publication series

NameWorking Papers in Real Estate Planning
PublisherUniversity of Reading


  • Investors? Sentiment
  • Demand-Supply Mismatch
  • Vector Error Correction Model

Cite this