Behavioral Finance as An Alternative Concept in Investor-Related Risk for Residential Projects : A Literature Review

Aditya Sutantio, I Putu Artama Wiguna

Abstract


Stakeholder  is a very important factor for project success. As part of external and the most influential project stakeholder, investor as a market agent, with embedded  needs, preferences and behavior might become critical project risks and should be identified and managed properly as a key project objective. This paper investigates previous studies to examine and to understand the mechanisms of investor’s economic behavior as the risk factor and its impact for the development of residential project. Traditional financial theory in the past decades generally emphasizes the rational model in investor’s decision-making without involving emotional aspect of behavior. Recently there are many scientists proposed  the theory of behavioral finance which combines insight from psychology and sociology into finance and investment with the market fundamental perspective. Based on the review, we conclude that behavioral finance can be considered as an alternative concept in assessing residential project risk especially in economic volatility.

Keywords


Investor’s behavior; behavioral finance; risk analysis, residential project

Full Text:

PDF

References


PMI, “A Guide to the Project Management Body of Knowledge”, 5th ed, Pennsylvania: Project Management Institute, Inc, 2013, pp. 417-420.

A. Adair and N. Hutchison, “ The reporting of risk in real estate appraisal property risk scoring”, Journal of Property Investment & Finance, vol. 23, 2005, pp.254-268, 2005.

L. B. Torres,” Housing Bubbles and economic fundamentals”, Real Estate Center, Texas A&M Univ., 2014. [6] A.A.E. Othman, “Incorporating value and risk management concepts in developing low cost housing projects”, Emirates Journal for Engineering Research, vol.13, pp.45-47, 2008.

C. Beringer, D. Jonas and A. Kock’ “ Behavior of internal stakeholders in project portfolio management and its impact on success”, International Journal of Management, vol. 31, pp. 830-831, 2013.

Z. Chen and S. Khumpaisal, “ An analytic network process for risk assessment in commercial real estate development”, Journal of Property Investment and Finance, vol. 27 (3), pp. 238-258, 2009.

A.A.E.Othman, “Incorporating value and risk management concepts in developing low cost housing projects”, Emirates Journal for Engineering Research, vol.13, pp.45-

, 2008.

J. M. Quigley, “ Real estate and the Asian crises. Journal of Housing Economics, pp. 129-161, 2001.

D. Salzman and R.C.J. Zwinkels, “ Behavior real estate”, presented at the Duisenberg school of finance-Timbergen Institute, London, UK, July 2013.

E. Granziera and S. Kozicki,” Fundamentals and expectations”, Journal of Economic Dynamics and control”, vol. 60, pp. 152-153, 2015.

S. Amin and S.S.Pirzada, “ Theory of behavioral finance and its application to property market: A change in paradigm’, Research Journal of Finance and Accounting, vol. 5, no.13, pp. 132-134, 2014.

J. Diaz, “ The first decade of behavioral research in the discipline of property’, Journal of Property Investment&Finance, vol.17(4), pp.326-336, 1999.

P. Gallimore, J.A.Hans and A.Gray,” Decision making in small companies”, Journal of Property Research, vol.19(2), pp. 602-612, 2000.

R.A.Rahadi, S.K.Wiryono, D.P.Koesrindartono and I.B.Syamwil,” Relationship between consumer preferences and value proposition”, Procedia Social and Behavioral Sciences, vol. 50, pp. 865-874, 2012

E.F. Fama, “ Efficient capital market: A Review of theory and empirical work”, The Journal of Finance, vo.25(2), pp. 383-417, 1970.

A. Farlow, “Housing, consumption and the economy: Why do house prices become misaligned, and what are the consequences?, London, 2005.

A.J. Jaffe and C.F. Sirmans, “ Fundamentals of real estate investment’, Englewood Cliffs, NJ, Prentice-Hall, 1995.

N.J. Vriend,” Rational behavior and economic theory”, Journal of economic behavior and organization, vol.29, pp. 263-285, 1996.

R. Whittle, T. Davies and M. Gobey, “ Behavioral economics and house prices: A literature review, Business and Management Horizon, vol.2 (2), pp. 17-23, 2014.

A. Gradinaru,” The contribution of behavioral economics in explaining the decision process”, Procedia Economics and Finance, vol.16, pp.417-426, 2014

J.W. Payne, J.R.Bettmen and E.J. Johnson, “ Adaptive strategy selection in decision making”, Journal of experimental psychology: Learning, Memory and Cognition, vol.14, pp. 534-552, 1988.

N.Wilkinson and M.Klaes, “ An introduction to behavioral economics”, 2nd ed, Palgrave McMillan, NY, 2005.

K.E. Case and R.J. Schiller,” The efficiency of the market for single-family homes”, The American Economic Review, vol 79(1), pp. 125-137, 1989.

W. De Bondt,” Real estate cycles and animal spirits”, In Pagliari, 1st (Ed), The Real Estate Portfolio Handbook, Richar Irwin, Chicago, USA, 1995.

H.A. Simon, “ Theories of decision-making in economics and behavioral science”, The American Economic Review, vol 49(3), pp. 253-283, 1955.

A. Farlow, “The UK housing market: Bubbles and

buyers’, presented at The Credit Suisse First Boston

Housing Market Conference, 2005.

A. Filip, M. Pochea and A. Peece, “ The Herding behavior

of investor in the CEE stock market”, Procedia Economics and Finance, vol.32, pp. 307-315, 2015.

R.J. Shiller,” Irrational Exuberance”, 2ed, Princeton University Press, USA, 2005.

A. Morone and E. Samanidou,” A simple note on herding behavior”, Journal of Evolutionary Economics, vol. 18(5), pp. 639-646, 2008.

T. Lux,” Herd behavior, bubbles and crashes”, The Economic Journal, vol 105 (431), pp. 881-896, 1995.

S. Bikchandani and S. Sharma,” Herd behavior in financial markets”, IMF Papers, vol 47,, 279-310, 2001.

M.A. De Weaver and R. Shannon,” Waning vigilance and the disposition effect: Evidence from Thailand on individual investor decision making”, Journal of Socio-economics, vol. 39(1), pp. 18-23, 2010.

D. Kahneman and A. Tversky,” Prospect theory: An analysis of decision under risk”, Econometrica, vol 47(2), pp. 263-292, 1979.

Backman, Lars, C von Hofsten,” Psychology at the turn of the millenium: Cognitive, biological and health perspectives”, 2002.

Z. Chen and S. Khumpaisal, “ Risk assessment in real estate development”, JARS, vol. 7 (1), pp.108-109, 2010.

C. A. Clausen, M. Jonsson, & B. Lagerwall,”En makroekonomisk analyd av bostadspriserna i Sverige. Stockholm: Sveriges riksbank, 2011.

E.L. Glaeser,” A nation og gamblers: real estate speculation and American history”, American Economic Review, vol 103(3), pp. 63-83, 2013.

D. M. Geltner, N.G. Miller., J. Clayton & P Eichholtz,. “ Commercial real estate Analyses and investments”, Mason, OH: Thomson Higher Education, 2007.

S.M. Renuka, C. Umarani and S. Kamal,” A review on critical risk factors in the life cycle of construction projects”, Journal of Civil Engineering Research, vol 4 (2A), pp. 31-36, 2014.

Statistic Department of Bank Indonesia,”Residential Property Survey for Primary House”, pp.1, 2015.

A. Kiselev and L Ryzhik, “A simple model for asset price bubble formation and collapse”, University of Wisconsin, Madison, WI,1991.

M. Hillebrand and T. Kikuchi, “A mechanism for booms and busts in housing prices”, Journal of Economic Dynamics & Control, vol. 51, pp. 204-2017, 2015.

R.A.Rahadi, S.K.Wiryono and D.P.Koesrindartono, “ Attributes influencing housing product value and price in Jakarta metropolitan region”, Procedia Social and Behavioral Sciences, vol. 101, pp. 368-378, 2013.

H. Tomura, “Heterogeneous beliefs and housing-market boom-bust cycles”, Journal of Economic Dynamics & Control, vol. 37,pp. 735-755, 2013.

L.M. Khodeir and A.H.M. Mohammed, “ Identifying the latest risk probabilities affecting construction projects in Egypt according to political and economic variables”’, HBRC Journal, vol. 11, pp.129-135.

T. Salah Al Nahdi and O.H. Ghazzawi,” Behavioral factors affecting real estate purchasing”, International Journal of Business and Social Science, vol. 6 (8), pp. 147-150, 2015.




DOI: http://dx.doi.org/10.12962/j23546026.y2017i6.3295

Refbacks

  • There are currently no refbacks.


View my Stat: Click Here

Creative Commons License
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.