The Anatomy of a Housing Bubble: Overconfidence, Media and Politics

Abstract

This paper investigates a potential housing bubble in Hong Kong in the 1990s. A within-city analysis is performed using a monthly panel data set on 324 large-scale housing complexes (estates) located in 17 out of 18 districts in Hong Kong. The empirical analysis focuses on crosssectional variations in home prices each month during the bubble and controls for housing price fundamentals using district-month fixed effects. I find evidence consistent with an overconfidence-driven speculation bubble. The same analysis is performed using a placebo period prior to the price upswing and no similar patterns are found. I propose media coverage and political uncertainties as potential causes of the bubble.