DP9786 Home Away From Home? Safe Haven Effects and London House Prices

Author(s): Cristian Badarinza, Tarun Ramadorai
Publication Date: December 2013
Keyword(s): economic risk, hedonic pricing, house prices, London, political risk, safe-haven
JEL(s): C53, D80, E47, F21, G12, G15
Programme Areas: International Macroeconomics, Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=9786

Historical time-series data is short relative to the frequency of political and economic crises. This makes it difficult to use pure time-series methods to identify the impacts of safe haven demand on asset prices, in the face of confounding effects from a wide range of alternative drivers. We present a new method to identify safe-haven effects which relies on combining the cross-section of asset prices with time-series measures of economic and political risk. We employ this strategy on large databases of historical housing transactions in London, and show that economic and political risk in Southern Europe, China, the Middle East, Russia, and South Asia is an important factor in explaining the dynamics of London house prices over the past two decades.