Property market and equity market price bubbles : a literature survey

Abstract

Research Topic: This study looks to inquire into the measurement, nature, causes and effects of real estate and financial market price bubbles. It will attempt to combine existing economic theories and literature in order to highlight any similarities or differences between the two types of market price bubbles. My research will also attempt to prove that expectations and speculation do play a role on the cycles of both real estate and financial markets worldwide and their effects can be noted and measured through the use of economic theories. Rationale for Research: This is a valid topic of research due to an apparent lack of literature linking the economic theories of expectations of economic agents to the cyclical trends in real estate and financial markets worldwide. Therefore, this study looks to shed light on the importance of these expectations in the formation of price bubbles within the two aforementioned market structures. Similarities and differences between these types of price bubbles are somewhat scarce in economic literature and this literature survey will attempt to group existing theories in order to provide clarity with regards to the characteristics of these price bubbles and how they differ or coincide with each other. Research Objectives: The aim of this study is to bring together literature based evidence and theory in order to determine clearly the effects of expectations and speculation of economic agents on real estate and financial markets, taking into account mainly the emergence of price bubbles, along with other structural and economic factors that may have incorporated themselves into the cyclical trends of these markets globally. This will be done through an in depth literature survey of existing economic journals and papers that look to provide information regarding all possible links between these two price bubbles. I will be attempting to link the existing range of ideologies and literature based evidence present regarding this branch of behavioral economics in order to prove or disprove that expectations and speculation do in fact play a pivotal role in the real estate cycles across differing countries and that they are a main cause of the emergence of price bubbles within markets. Finally, all relevant characteristics regarding similarities and differences between these two types of price bubbles will be clearly shown in order to shed light on the nature of these bubbles and what to ultimately expect when dealing with these two asset price bubbles. Data will be taken from economic journals online along with any relevant websites found in order to further strengthen my arguments.