ABM simulations of housing portfolios in normal and bubble times

Throughout history, the housing market have collapsed numerous times causing distraught among homeowners as well as investors, with the most prominent ones being the Asian financial crisis in 1997 and the global financial crisis in 2007. In most cases, these price inflations are driven by the wealth...

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Main Author: Wee, Shaun Jun Jie
Other Authors: Cheong Siew Ann
Format: Final Year Project
Language:English
Published: Nanyang Technological University 2020
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Online Access:https://hdl.handle.net/10356/139543
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Institution: Nanyang Technological University
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spelling sg-ntu-dr.10356-1395432023-02-28T23:14:23Z ABM simulations of housing portfolios in normal and bubble times Wee, Shaun Jun Jie Cheong Siew Ann School of Physical and Mathematical Sciences cheongsa@ntu.edu.sg Science::Physics Throughout history, the housing market have collapsed numerous times causing distraught among homeowners as well as investors, with the most prominent ones being the Asian financial crisis in 1997 and the global financial crisis in 2007. In most cases, these price inflations are driven by the wealthy. As such, understanding these individuals’ impact to the housing market could shed light on the formation of bubbles. To do so, we first need to understand how they invest, and with such an expensive asset class, how they manage their housing portfolio. In finance, the most popular method regarded for portfolio management is through Modern Portfolio Theory (MPT). Hence, our goals are to gain insight on the effectiveness of MPT strategy in the housing market and investor’s housing portfolio in both normal and bubble times. Due to the lack of information and transparency in many private housing markets, an alternative solution is to set up our own housing market. In this paper, we constructed a preliminary ABM simulation, as an Econophysics approach, to simulate interactions of multiple investors (the wealthy) in order to create an artificial housing market. For simplicity, we externally simulated the stock market as our secondary asset class and coupled it with our ABM to facilitate investors behaviour. We found that in normal stock times, a housing bubble was not formed, but if a stock market has both bubble and normal times, a housing bubble could form. We also found that MPT is effective with higher probability of positive returns in normal housing and stock times. Lastly, we found a reversion of housing portfolio weights during a housing bubble in a poor performing stock market. This implies that in an inflated housing price situation, investors portfolio allocation towards housing significantly increases but reverses in normal housing times. Bachelor of Science in Physics 2020-05-20T05:00:19Z 2020-05-20T05:00:19Z 2020 Final Year Project (FYP) https://hdl.handle.net/10356/139543 en application/pdf Nanyang Technological University
institution Nanyang Technological University
building NTU Library
continent Asia
country Singapore
Singapore
content_provider NTU Library
collection DR-NTU
language English
topic Science::Physics
spellingShingle Science::Physics
Wee, Shaun Jun Jie
ABM simulations of housing portfolios in normal and bubble times
description Throughout history, the housing market have collapsed numerous times causing distraught among homeowners as well as investors, with the most prominent ones being the Asian financial crisis in 1997 and the global financial crisis in 2007. In most cases, these price inflations are driven by the wealthy. As such, understanding these individuals’ impact to the housing market could shed light on the formation of bubbles. To do so, we first need to understand how they invest, and with such an expensive asset class, how they manage their housing portfolio. In finance, the most popular method regarded for portfolio management is through Modern Portfolio Theory (MPT). Hence, our goals are to gain insight on the effectiveness of MPT strategy in the housing market and investor’s housing portfolio in both normal and bubble times. Due to the lack of information and transparency in many private housing markets, an alternative solution is to set up our own housing market. In this paper, we constructed a preliminary ABM simulation, as an Econophysics approach, to simulate interactions of multiple investors (the wealthy) in order to create an artificial housing market. For simplicity, we externally simulated the stock market as our secondary asset class and coupled it with our ABM to facilitate investors behaviour. We found that in normal stock times, a housing bubble was not formed, but if a stock market has both bubble and normal times, a housing bubble could form. We also found that MPT is effective with higher probability of positive returns in normal housing and stock times. Lastly, we found a reversion of housing portfolio weights during a housing bubble in a poor performing stock market. This implies that in an inflated housing price situation, investors portfolio allocation towards housing significantly increases but reverses in normal housing times.
author2 Cheong Siew Ann
author_facet Cheong Siew Ann
Wee, Shaun Jun Jie
format Final Year Project
author Wee, Shaun Jun Jie
author_sort Wee, Shaun Jun Jie
title ABM simulations of housing portfolios in normal and bubble times
title_short ABM simulations of housing portfolios in normal and bubble times
title_full ABM simulations of housing portfolios in normal and bubble times
title_fullStr ABM simulations of housing portfolios in normal and bubble times
title_full_unstemmed ABM simulations of housing portfolios in normal and bubble times
title_sort abm simulations of housing portfolios in normal and bubble times
publisher Nanyang Technological University
publishDate 2020
url https://hdl.handle.net/10356/139543
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