Can a stochastic cusp catastrophe model explain housing market crashes?

Diks, Cees; Wang, Juanxi

doi:10.1016/j.jedc.2016.05.008

Cited by 59 publications

(74 citation statements)

References 44 publications

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“…Recently, very similar ideas have been applied to explain the dynamics of housing markets. In Westerho¤ (2012, 2016), Zwinkels (2014, 2015), Bolt et al (2014), Eichholtz et al (2015) and Diks and Wang (2016), housing market investors select between extrapolative and regressive expectation rules to determine the development of housing markets. The dynamics of all these models live from the fact that the market impact of destabilizing technical and stabilizing fundamental trading rules, or of destabilizing extrapolative and stabilizing regressive expectation rules, changes over time.…”

Section: Related Literaturementioning

confidence: 99%

Interactions between stock, bond and housing markets

Dieci

Schmitt

Westerhoff

2018

Journal of Economic Dynamics and Control

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractWe develop a model in which investors can participate in stock, bond and housing markets. Investors'market entry decisions are subject to herding e¤ects and depend on the markets'price trends and on their mispricings. The dynamics of our model is governed by a four-dimensional nonlinear map and its unique inner steady state is characterized by standard present-value relations between dividends, rents and the bond rate. Amongst other things, we show that endogenous stock and housing market dynamics emerge, countercyclical to each other, if investors react strongly to the markets'price trends. Such a cross feedback re ‡ects investors'tendency to transfer their enthusiasm from one speculative market to another.JEL Classi…cation: D84; G12; R21

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Section: Related Literaturementioning

confidence: 99%

Interactions between stock, bond and housing markets

Dieci

Schmitt

Westerhoff

2018

Journal of Economic Dynamics and Control

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“…Another important property of this model is that the adjustment towards the outer steady states is assumed to occur very fast. While Zeeman (1974) models the change of a stock market index, we follow Diks and Wang (2016) and use this model to explain the level of a stock market index. To be precise, the log of the stock market index results as…”

Section: Distributional Properties Of Other Agent-based Financial Marmentioning

confidence: 99%

“…Due to their close relation, the model by Day and Huang (1990) may be used to better understand the origin of the multiple steady states in Zeeman's (1974) model. Moreover, the discrete-time approximation of Zeeman's (1974) model presented in Diks and Wang (2016) (1993) is that fundamentalists disagree about the stock market's true fundamental value. To be precise, the fundamentalists' perception of the fundamental value is normally distributed around the true fundamental value.…”

Section: Distributional Properties Of Other Agent-based Financial Marmentioning

confidence: 99%

On the bimodality of the distribution of the S&P 500's distortion: Empirical evidence and theoretical explanations

Schmitt

Westerhoff

2017

Journal of Economic Dynamics and Control

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractAfter showing that the distribution of the S&P 500's distortion, i.e. the log difference between its real stock market index and its real fundamental value, is bimodal, we demonstrate that agentbased financial market models may explain this puzzling observation. Within these models, speculators apply technical and fundamental analysis to predict asset prices. Since destabilizing technical trading dominates the market near the fundamental value, asset prices tend to be either overvalued or undervalued. Interestingly, the bimodality of the distribution of the S&P 500's distortion confirms an implicit prediction of a number of seminal agent-based financial market models.

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“…5 We follow the notation used by Lorenz (1993), while other papers in the literature use a different notation, cf. Thom (1975) or Diks and Wang (2016). 6 The singularity set contains all parameter combinations such that the equilibrium surface is tangent to the direction of x.…”

Section: Catastrophe Theorymentioning

confidence: 99%

Catastrophe theory and the financial crisis

Wesselbaum

2017

Scottish J Political Eco

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This paper develops and estimates catastrophe‐augmented models of the financial crisis. We employ catastrophe theory to explain discontinuous jumps in state variables of dynamic systems. We estimate an augmented bank failure model showing that the buildup of risk and an increase in the Federal Funds rate combined with low reserves (negative insurance effect) have been the main drivers of the financial crisis. Therefore, macroprudential policy and rating agencies play a key role in preventing the buildup of (systemic) risk and preventing the economy from entering a bifurcation area.

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Can a stochastic cusp catastrophe model explain housing market crashes?

Cited by 59 publications

References 44 publications

Interactions between stock, bond and housing markets

Interactions between stock, bond and housing markets

On the bimodality of the distribution of the S&P 500's distortion: Empirical evidence and theoretical explanations

Catastrophe theory and the financial crisis

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