MODELLING EFFECT OF INVESTOR SENTIMENTS ON THE HOUSING: CASE STUDY OF SAUDI MARKET VOLATILITY

Abstract

In recent years, there has been growing attention on investor psychology, irrational behaviour, and their influence on housing returns in Saudi Arabia. Accordingly, this study seeks to examine the extent to which irrational behaviour and investor sentiment affect housing market returns within the Saudi context, with particular focus on the asymmetrical effects of investor attitudes over the period from September 2009 to September 2022. The relationship between investor mood and the performance of both the Saudi stock and real estate markets is analysed using the Nonlinear Autoregressive Distributed Lag (NARDL) model. The findings indicate that negative shifts in investor mood are significantly associated with higher housing returns, whereas positive shifts exert minimal influence. The autoregressive component reveals that, aside from the fourth lag which has a negative impact, previous returns generally have a positive effect on current returns. The model accounts for approximately 99.77% of the variation in real estate returns, reflecting a strong overall fit. These results underscore the importance of comprehensively understanding the dynamics of the Saudi housing market, as investor sentiment may have a lagged influence and the interactions between market returns and economic factors are multifaceted.