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House price risk and the hedging benefits of home ownership

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  • Dröes, Martijn I.
  • Hassink, Wolter H.J.
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    Abstract

    Using a repeat-sales methodology, this paper finds that estimates of house price risk based on aggregate house price indices substantially underestimate the true size of house price risk. This is the result of the fact that aggregate house price indices average away the idiosyncratic volatility in house prices. Additional results show that the idiosyncratic risk exceeds the hedging benefits of home ownership. These results imply that for many home owners, owning a house may well add more price risk than it hedges away. These findings are based on a detailed dataset of individual housing transactions in the Netherlands.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Housing Economics.

    Volume (Year): 22 (2013)
    Issue (Month): 2 ()
    Pages: 92-99

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    Handle: RePEc:eee:jhouse:v:22:y:2013:i:2:p:92-99

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    Web page: http://www.elsevier.com/locate/inca/622881

    Related research

    Keywords: House price risk; House price volatility; Market risk; Idiosyncratic risk; Hedge;

    References

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    16. Robert J. Shiller, 2008. "Derivatives Markets for Home Prices," NBER Working Papers 13962, National Bureau of Economic Research, Inc.
    17. Quigley, John M., 2006. "Real estate portfolio allocation: The European consumers' perspective," Journal of Housing Economics, Elsevier, vol. 15(3), pages 169-188, September.
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