Hedging Housing Risk in London
AbstractThis paper investigates the benefits of allowing households to compensate the portfolio distortion due to their housing consumption through investments in housing price derivatives. Focusing on the London market, we show that a major loss from over-investment in housing is that households are forced to hold a very risky portfolio. However, the strong performance of the London housing market means that little is lost in terms of expected returns. Even households with limited wealth are better off owning their home rather than renting and investing in financial assets, as long as they are willing to face the financial risk involved. In this context, access to housing price derivatives would benefit most poor homeowners looking to limit their risk exposure. It would also benefit wealthier investors looking for the high returns provided by housing investments without the costs of direct ownership of properties. Comparisons with French, Swedish and U.S. data provide a broader perspective on our findings. Copyright 2003 by Kluwer Academic Publishers
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Bibliographic InfoArticle provided by Springer in its journal Journal of Real Estate Finance & Economics.
Volume (Year): 27 (2003)
Issue (Month): 2 (September)
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Web page: http://www.springerlink.com/link.asp?id=102945
Other versions of this item:
- Matteo Iacoviello & Francois Ortalo-Magne, 2002. "Hedging Housing Risk in London," Boston College Working Papers in Economics 539, Boston College Department of Economics.
- François Ortalo-Magné & Matteo Iacoviello, . "Hedging Housing Risk in London," Wisconsin-Madison CULER working papers 02-03, University of Wisconsin Center for Urban Land Economic Research.
- Matteo Iacoviello, 2002. "Hedging Housing Risk in London," FMG Discussion Papers dp415, Financial Markets Group.
- E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
- G1 - Financial Economics - - General Financial Markets
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