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This paper is kindly sponsored by the IRE/BS Foundation for African Real Estate Research

21 st Annual Conference of the European Real Estate Society Heuristic-driven bias in property investment decision-making in South Africa by Dr GA Lowies - Prof JH Hall - Prof CE Cloete. This paper is kindly sponsored by the IRE/BS Foundation for African Real Estate Research. TABLE OF CONTENTS.

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This paper is kindly sponsored by the IRE/BS Foundation for African Real Estate Research

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  1. 21st Annual Conference of the European Real Estate Society Heuristic-driven bias in property investment decision-makingin South AfricabyDr GA Lowies - Prof JH Hall - Prof CE Cloete

  2. This paper is kindly sponsored by the IRE/BS Foundation for African Real Estate Research

  3. TABLE OF CONTENTS • Introduction • Literature & previous research • Research method • Empirical analysis and results • Conclusion • Recommendation • Contact details

  4. INTRODUCTION • Behavioural finance • Behavioural research on the property market & research problem (Hardin:1999 & Kishore:2006) • Aim/Objective of this research • To determine the influence, or not, of anchoring and adjustment and subsequent herding behaviour on property investment decisions • Focus: Property fund managers of listed property funds • Difference of this research • Sample • Emerging market

  5. LITERATURE & PREVIOUS RESEARCH • Introduction • International studies • Tversky & Kahneman (1974); Edwards (1982); Welch (2000); Shefrin (2002); Cen, Hilary & Wei (2010); Kudrayavtsev & Cohen (2010); Jegadeesh & Kim (2010); Lin (2011) • Findings: 1. Tendency to stand with anchor value 2. Lack of understanding of new information 3. Herding behaviour exists • Northcraft & Neale (1987); Gallimore, Hansz & Gray (2000); Leung & Tsang (2011) – similar findings as above • No South African studies to date

  6. RESEARCH METHOD • Sample characteristics: • Fund managers of listed property funds; South African based; actively traded; 27 funds (29 fund managers) • Research design & instrument: • Survey-based design using a questionnaire • Questionnaire: • Decision-maker profile; fund information; anchoring and adjustment; herding behaviour • Statistical analysis: • Basic descriptive analysis; Fisher’s exact test • Response rate = 59% (80% market cap representation)

  7. EMPIRICAL ANALYSIS & RESULTS (1) Anchoring and Adjustment • Property choice (anchoring): • Majority of respondents (76.4%) choose property C )

  8. EMPIRICAL ANALYSIS & RESULTS (2) • Property choice after the introduction of new information (adjustment): • Property A the more favourable choice given the new information • 85% of respondents that had previously chosen property C, stays with property C.

  9. EMPIRICAL ANALYSIS & RESULTS (3) • Change to the investment decision of the competitors knowing that the competitors invest for the wrong reasons • No irrational herding

  10. EMPIRICAL ANALYSIS & RESULTS (4) • Change to better informed competitors’ investment decision in relation to the change in the initial investment decision • No statistical significance although 52.9% of respondents would not change their initial investment decision even if their competitors is better informed • No rational herding

  11. EMPIRICAL ANALYSIS & RESULTS (5) • Change to competitors’ investment decision because of a degree of uncertainty in relation to the change in the investment decision due to new information • No statistical significance (p>0.05) • Slightly higher than previous result – no rational herding

  12. CONCLUSION • Aim: to establish the influence of anchoring and adjustment and herding behaviour on property investment decisions. • Anchoring and adjustment: • Consistency with results of Northcraft & Neale (1987); Kudryavstev & Cohen (2010) and Leung & Tsang (2011). • Disregard the fact that new information deemed the original anchor less favourable. • Bias may exist due to extreme conservative outlook • Herding behaviour: • In contradiction to Northcraft & Neale (1987) and Lin (2011) • No statistical significant results

  13. RECOMMENDATION • Restructuring of normative framework to incorporate behavioural factors. • More in-depth empirical investigation on a larger sample – comparative study. • Investigating the decision-making environment to understand the socio-political barriers. • Government influences on investment decision-making.

  14. CONTACT DETAILS Dr GA Lowies Department of Financial Management University of Pretoria, South Africa 0002 +27(0)12 420 3404 +27(0)76 858 2671 braam.lowies@up.ac.za

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