CMMU Faculty Member Publishes in Top Forecasting Journal

CMMU faculty member Assoc. Prof. Dr. Roy Kouwenberg’s research on “Forecasting the U.S. Housing Market” has been accepted for publication in the International Journal of Forecasting. The article is joint work with Dr. Remco Zwinkels of Erasmus University Rotterdam, The Netherlands. The International Journal of Forecasting is the leading international journal on forecasting, and the official publication of the International Institute of Forecasters (IIF). The journal is listed in the ISI-SSCI (impact factor = 1.8) and Scopus citation databases, and ranked in Quartile1. The accepted paper develops a new approach for forecasting price trends in the housing market. Using recent data from the United States, the model illustrates how the U.S. housing market went through a large price bubble and burst in the period 2001-2009. Further, the results show that the proposed model makes better house price forecasts than competing models. For future research work, the new model can be applied to housing markets in other countries as well. Below, is the abstract of the paper.

Forecasting the U.S. Housing Market Abstract The recent housing market boom and bust in the United States illustrates that real estate returns are characterized by short-term positive serial correlation and long-term mean reversion to fundamental value. We develop an econometric model that includes these two components, but with weights that vary dynamically through time depending on recent forecasting performance. The smooth transition weighting mechanism can assign more weight to positive serial correlation in boom times, and more weight to reversal to fundamental value during downturns. We estimate the model with U.S. national house price index data. In-sample, the switching mechanism significantly improves the fit of the model. In an out-of-sample forecasting assessment the model performs better than competing benchmark models. Authors: Assoc. Prof. Dr. Roy Kouwenberg, CFA and Assistant Prof. Dr. Remco Zwinkels