ROLE OF INFORMATION IN THE REAL ESTATE MARKET: THE CASE OF THE FRACKING BOOM
Open Access
- Author:
- Shen, Yannan
- Graduate Program:
- Business Administration
- Degree:
- Doctor of Philosophy
- Document Type:
- Dissertation
- Date of Defense:
- June 07, 2016
- Committee Members:
- Brent William Ambrose, Dissertation Advisor/Co-Advisor
Brent William Ambrose, Committee Chair/Co-Chair
Austin Jay Jaffe, Committee Member
N. Edward Coulson, Committee Member
Quanwei Cao, Outside Member
Chris Cunningham, Special Member
Kristopher Gerardi, Special Member
Jiro Yoshida, Committee Member - Keywords:
- mortgage
real estate
information
fracking
housing
finance
mortgage default - Abstract:
- When an exogenous force, such as policy change or natural disaster, occurs and changes an economic environment, it also creates an excellent opportunity to study how different market participants react to uncertainties. Using the recent fracking boom as a natural experiment, my dissertation presents three studies that examine the behaviors of individual homebuyers, loan originators, and mortgage borrowers in the post-change period. The first study examines both temporal and spatial impact of unconventional natural gas exploration on mortgage default in an effort to understand how mortgage borrowers respond to a wealth shock with unknown consequences and how their reactions translate into default decisions on residential mortgages. My analysis provides compelling empirical evidence that mortgages originated in the shale gas region after the shale gas boom are associated with a 58% decrease in default probability compared to the state average default rate. Findings of my temporal analysis suggest that: (1) borrowers stopped defaulting on mortgages as soon as extracting shale gas became profitable nationwide; and (2) local permitting activities do not have additional impact on borrowers’ default decision. The second study strives to extend the knowledge about the impact of information on real estate price by incorporating both homeowners’ past experiences as well as recent information shocks. In particular, I am interested in examining how home buyers’ past experiences with conventional gas explorations affect their pricing of properties near unconventional gas explorations sites. Utilizing CoreLogic home price index data, I find that environmental related fracking accident can negatively affect house price in shale gas region but this effect diminishes in 6 months. This finding suggests that individuals discount past information and mainly rely on the latest information to estimate the risk of an activity.