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The Big Short: Short Selling Activity and Predictability in House Prices
Author(s) -
Saffi Pedro A.C.,
VergaraAlert Carles
Publication year - 2017
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/1540-6229.12219
Subject(s) - real estate investment trust , predictability , economics , house price , equity (law) , real estate , financial economics , monetary economics , asset (computer security) , investment (military) , finance , business , physics , computer security , quantum mechanics , politics , political science , law , computer science
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.