Cusp catastrophe theory: Application to the housing market
| Název práce v češtině: | Teorie katastrof: aplikace na trh s bydlením |
|---|---|
| Název v anglickém jazyce: | Cusp catastrophe theory: Application to the housing market |
| Klíčová slova anglicky: | Housing market, catastrophe theory, stochastic cusp catastrophe model, housing bubble, real estate, fundamental investors, speculation. |
| Akademický rok vypsání: | 2017/2018 |
| Typ práce: | bakalářská práce |
| Jazyk práce: | angličtina |
| Ústav: | Institut ekonomických studií (23-IES) |
| Vedoucí / školitel: | PhDr. Jiří Kukačka, Ph.D. |
| Řešitel: | skrytý - zadáno vedoucím/školitelem |
| Datum přihlášení: | 14.06.2018 |
| Datum zadání: | 14.06.2018 |
| Datum a čas obhajoby: | 10.06.2019 09:00 |
| Místo konání obhajoby: | Opletalova - Opletalova 26, O206, Opletalova - místn. č. 206 |
| Datum odevzdání elektronické podoby: | 09.05.2019 |
| Datum proběhlé obhajoby: | 10.06.2019 |
| Oponenti: | Mgr. Ing. Matěj Nevrla, Ph.D. |
| Kontrola URKUND: | |
| Seznam odborné literatury |
| Barunik, Jozef and Kukacka, Jiri, (2015), Realizing stock market crashes: Stochastic cusp catastrophe model of returns under the time-varying volatility, Quantitative Finance, Vol. 15, No. 6, pp. 959-973.
Barunik, Jozef and Vosvrda, Miloslav, (2009), Can a stochastic cusp catastrophe model explain stock market crashes?, Journal of Economic Dynamics and Control, Vol. 33, No. 10, pp. 1824-1836. Cobb, Loren, (1981a), Estimation theory for the cusp catastrophe model, MPRA Paper 37548, University Library of Munich, Germany, revised 05 Jun 2010. Cobb, Loren, (1981b), Parameter estimation for the cusp catastrophe model, Behavioral Science, Vol. 26, No. 1, pp. 75-78. Dieci, Roberto and Westerhoff, Frank, (2015), Heterogeneous expectations, boom-bust housing cycles, and supply conditions: A nonlinear dynamics approach, BERG Working Paper Series, No. 99, ISBN 978-3-943153-16-3, Bamberg University, Bamberg Economic Research Group (BERG), Bamberg Diks, Cees and Wang, Juanxi, (2016), Can a cusp catastrophe model explain housing market crashes?, Journal of Economic Dynamics and Control, Vol. 69, pp. 68-88. Kouwenberg, Roy and Zwinkels, Remco R. J., (2015), Endogeneous Price Bubbles in a Multi-Agent System of the Housing Market, PLoS ONE 10(6): e0129070, doi:10.1371/journal.pone.0129070. Shiller, Robert J., (2005), Irrational exuberance (2nd edition), Princeton, N.J., Princeton University Press Shiller, Robert J., (2007), Understanding Recent Trends in House Prices and Home Ownership, No 1630, Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University. Zeeman, Erik C., (1974), On the unstable behavior of stock exchanges, Journal of Mathematical Economics, Vol. 1, No. 1, pp. 39-49. |
| Předběžná náplň práce v anglickém jazyce |
| Research question and motivation
The housing market has been at the forefront of discussion among economists in the past decades as it has been linked to major world events. The presence and burst of housing bubbles, most notably in the U.S. in late 2000s, but also in many European countries, significantly contributed to financial crises. Therefore, understanding the forces behind the housing market has become vital. Robert Shiller in his book Irrational Exuberance (2nd edition) claims that not only fundamental values, but also psychological factors play an important role in determining housing prices and developing bubbles. Thus, models assuming only fundamental investors and relying only on fundamental values may lead to erroneous conclusions as these models omit one of the important aspects. As a result, models assuming heterogeneous expectations and interactions between heterogeneous agents have been developed (Kouwenberg and Zwinkels, 2015; Dieci and Westerhoff, 2015). These models have shown that the interaction between fundamental investors and speculators may produce results better describing the reality compared to models relying only on fundamental values. One such approach is catastrophe theory, whose first application to the financial markets was proposed by Zeeman in his paper On the unstable behavior of stock exchanges (1974). In this thesis, the catastrophe theory, specifically the cusp catastrophe model, will be applied to the housing market to assess its suitability to describe the market and its crashes. Contribution While the cusp catastrophe theory has been successfuly applied to the stock market (Barunik and Vosvrda, 2009; Barunik and Kukacka, 2015), its application to the housing market has been limited. Diks and Wang (2016) used the theory to describe the housing market of 6 countries. However, as only the interest rate was used as the control variable, it gives the opportunity to explore this topic further. This thesis will attempt to use multiple control variables to represent the fundamental investors and the speculative money on the market and estimate their effects. The results of this thesis could be used for further policy making regarding the housing market and for better identification of conditions in the market leading to a possible crash. Methodology First, the housing market and the associated macroeconomic indicators will be described and qualitatively assessed whether their development and values correspond to the behavior of the market. Then, the cusp catastrophe theory will be applied and its fit evaluated and compared to other econometric models. The returns of the Dow Jones U.S. Real Estate Index will represent the state variable, while various indicators (volume of mortgage-backed securities held by banks, mortgage applications, 30-year mortgage rate etc.) will be tested as the control variables. Cobb’s maximum likelihood method (Cobb, 1981a, 1981b) will be used to estimate the parameters of the model. As the volatility of the housing market returns cannot be considered constant over time, a GARCH model will be implemented to estimate the volatility. The returns normalized by the estimated volatility will then satisfy the constant volatility assumption necessary for the stochastic catastrophe model. The data (macroeconomic indicators, housing market indicators, indices) will be collected using Thomson Reuters Eikon, The Federal Bank of St. Louis and, possibly, other sources. Outline 1. Introduction 2. U.S. housing market before the 2008 crisis and today 3. Recent housing market research review and catastrophe theory literature review 4. Methodology 5. Model and results 6. Conclusion 7. References |