<p>It is problematic to use as a word.  Some of the better authors in the last one hundred years have defined it, but there is no consistent definition.  I provide an operational definition for a narrow purpose in a paper as those possessing risk-loving preferences.  That definition, of course, would exclude many traders.  I use it with reference to implications for prudential regulation, but I didn't need to measure it for what I was doing as their presence or absence didn't impact the empirical component.</p>

<p>The problem of talking about "speculators," aside from the definition problem, is that it is not a behavior.  Indeed, it's not meaningful.  Imagine seeing a newspaper article about a plane crash, and "gravity" was blamed.  Excluding planes flying into mountains, how useful would it be to discuss the effects of gravity on planes instead of mechanical failure causing gravity to suddenly become more meaningful?</p>

<p>I can think of possible ways to mathematically segregate speculative behavior if you can clearly state what you mean by the word, but I would really want to ground that in a model so it would very clear what the predictions might be.  However, I can also imagine definitions where central banks could fall into that categorization in some cases so rigor will be both difficult and require a clear statement that it is an operational definition and not a canonical definition.</p>

<p>In the housing market, I doubt it could be readily measured because the measures in the housing market are so easily manipulated and there are plenty of incentives to manipulate.  That may not be true in the Canadian system, but in the American system, particularly with REITs, there is just a ton of ways to play games.  I think you would want a tamer market, such as equities, to build test runs of a methodology.</p>

CC BY-SA 3.0
2017-11-16T05:35:00.390Z
2017-11-16T05:35:00.390Z
Dave Harris
<p>I've been to a couple of presentations recently on the housing market in Toronto and I've heard the term "speculation" thrown around by economists/academics when discussing factors that are contributing to the rise in housing prices.</p>

<p>It seems to be just something to pin the blame of forecasting error on. </p>

<p>I am yet to see any clear measures of speculation but always see it mentioned again and again. </p>

CC BY-SA 3.0
2017-11-16T08:50:38.747Z
You can think if it as a self-fulfilling bubble, which we know is harmful. It can be rational to ride the bubble, even though the high prices are not supported by fundamentals. This can keep going for a long time, until it bursts with negative consequences, as it did in the US in 2008
BB King
<econometrics><reference-request>
Speculation: Why is it referenced and how do we account for it?
EconJohn
# Speculation: Why is it referenced and how do we account for it?

(Asked by: username_0 on 2017-11-16)

I've been to a couple of presentations recently on the housing market in Toronto and I've heard the term "speculation" thrown around by economists/academics when discussing factors that are contributing to the rise in housing prices.

It seems to be just something to pin the blame of forecasting error on.

I am yet to see any clear measures of speculation but always see it mentioned again and again.

**Tags:** econometrics, reference-request
> **Comments:**
> **username_1**: You can think if it as a self-fulfilling bubble, which we know is harmful. It can be rational to ride the bubble, even though the high prices are not supported by fundamentals. This can keep going for a long time, until it bursts with negative consequences, as it did in the US in 2008  

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## 1 answers

### Answer by username_2 on 2017-11-16. Score: 1

It is problematic to use as a word. Some of the better authors in the last one hundred years have defined it, but there is no consistent definition. I provide an operational definition for a narrow purpose in a paper as those possessing risk-loving preferences. That definition, of course, would exclude many traders. I use it with reference to implications for prudential regulation, but I didn't need to measure it for what I was doing as their presence or absence didn't impact the empirical component.

The problem of talking about "speculators," aside from the definition problem, is that it is not a behavior. Indeed, it's not meaningful. Imagine seeing a newspaper article about a plane crash, and "gravity" was blamed. Excluding planes flying into mountains, how useful would it be to discuss the effects of gravity on planes instead of mechanical failure causing gravity to suddenly become more meaningful?

I can think of possible ways to mathematically segregate speculative behavior if you can clearly state what you mean by the word, but I would really want to ground that in a model so it would very clear what the predictions might be. However, I can also imagine definitions where central banks could fall into that categorization in some cases so rigor will be both difficult and require a clear statement that it is an operational definition and not a canonical definition.

In the housing market, I doubt it could be readily measured because the measures in the housing market are so easily manipulated and there are plenty of incentives to manipulate. That may not be true in the Canadian system, but in the American system, particularly with REITs, there is just a ton of ways to play games. I think you would want a tamer market, such as equities, to build test runs of a methodology.


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