Impact of housing price uncertainty on herding behavior : evidence from UK’s regional housing markets

Abstract

This study investigates the impact of housing price uncertainty on the herding behavior in the UK's regional housing markets. Using a sample of thirteen regional housing markets and quarterly data from 1973Q4 to 2019Q2, we find that the probability of herding behavior is increasing in price uncertainty in nine of the thirteen regions and the national housing market. However, London and the Outer Metro regions, which have a high presence of institutional investors and high population, exhibit decreasing probability of herding as price uncertainty increases. We attribute this to the presence of informed investors and low asset value uncertainty. Therefore, since herding amplify market volatility, instability, fragility and asset mispricing, policy makers need to minimize policy uncertainties and implement regulatory mechanisms such as circuit breakers to circumvent the price and policy information risk from inducing non-information and irrational herding behavior among the investors.