Asset Prices and Armageddon: Do Evangelicals End TimesBeliefs A¤ect U.S. House Prices?

According to surveys, around a quarter of Americans expect the world to end as prophesied by the Bible during their own lifetime. This paper undertakes the …rst test of whether these ‘end times’ beliefs a¤ect economic behavior, using a 10-year panel of house price data across 363 Metropolitan Statistical Areas (MSAs). It identi…es a causal e¤ect by interacting a time-varying proxy for the perceived probability of the ‘end times’occurring soon with a geographically-varying proxy for the proportion of believers in Biblical prophecy, both of which are exogenous with respect to changes in house prices, controlling for time and area …xed effects. The paper uncovers a signi…cant positive e¤ect that is robust across samples, speci…cations, and alternative data sources. One explanation for this positive e¤ect is that believers in Biblical prophecy face a tension – between their belief that the end of the world is imminent and Biblical injunctions to behave responsibly in the meantime – that could be reduced by holding illiquid or ‘commitment’ assets to lock in responsible behavior, generating a premium on such assets. Data on mortgage applications support this interpretation. The paper therefore supports models –such as Laibson’s (1997) ‘golden eggs’model of hyperbolic discounting – that incorporate time inconsistent preferences and predict a commitment premium. JEL Classi…cations: E21, R21, Z12. This work re‡ects the views of the author alone and does not re‡ect the views of the IMF, its Executive Board or Management. The author would like to thank Marcos Chamon, Julian Di Giovanni, Andre Faria, Rodney Ramcharan and Romain Ranciere for helpful discussions; Giovanni Dell’Ariccia, Deniz Igan and Luc Laeven for making their mortgage application data available; and Paul S. Boyer and participants at the IMF Research Department’s Brown Bag seminar for comments on an earlier draft of the paper. All remaining errors are my own.