Finance

The Big Short: Short Selling Activity and Predictability in House Prices

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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.
Bibliographic citation: SAFFI, P., VERGARA, C. (2020). The Big Short: Short Selling Activity and Predictability in House Prices. Real Estate Economics, 48 (4), 1030-1073. doi:10.1111/1540-6229.12219.

Reference: 10.1111/1540-6229.12219 (DOI)
Date: 01/12/2020
Author(s): Pedro Saffi; Carles Vergara
Document type: Article in Journal (refereed)
Department: Financial Management
Sector: Real estate sale
Languages: English