The Rise and Fall of a Rumor: Evidence from Regional Housing Markets in China

In this paper, we examine how the enforcement and collapse of a rumor affect regional housing markets in China. Specifically, we trace the rumor that Yanjiao and Dachang, two counties in Hebei province, were to be merged into Tongzhou, a county of Beijing, and quantify the bust of housing prices when the rumor collapses. Using a difference-in-difference approach in a sample of housing units listed between 2015 -2019, we find that listing price in Yanjiao and Dachang drops by 25.1% relative to Tongzhou since local governments clarify the rumor. We further evidence that herding and speculation accelerate the price bust, and a small group of housing speculators trade the price down through the contagion effect.