This paper examines whether noise traders generated by self-fulfilling mechanisms cause irrational price volatility. Because their self-fulfilling expectations are based on market sentiment, the regulators need to stabilize the prices through policy announcements or policy tools. This study analyzes noise tradersí self-fulfilling expectation in the Chinaís market where government strongly interfere. We find that asymmetric information may initiate noise traders into self-fulfilling expectation, and government is unsuccessful to control the house price shooting. We further consider the influence of market state switching. It finds that market presents evidence of self-fulfilling expectation, and also increased price volatility counteracts government intervention. Finally, other financial markets except stock are still ineffectiveness by controlling contagion effect.
Hung, KuoChe, MingChi Chen, and LingYu Huang. "The Impact of Real Estate Prices:Noise Tradersí Self-Fulfilling Expectations and Market Stress." In 18th Annual European Real Estate Society Conference. ERES: Conference. Eindhoven, the Netherlands, 2011.
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