Index-Based Futures and Options Markets in Real Estate
AbstractMost institutional and individual portfolios are very undiversified in real estate: many hold no real estate at all, many have holdings highly concentrated in certain regions or types of real estate. The risk of these concentrated holdings is not hedged. We propose here that cash-settled futures and options markets be opened on real estate to better allow diversification and hedging, and show that these markets solve problems that have hampered other real estate hedging media in the past. Related institutions, such as home equity insurance, might develop around the futures and options markets. The establishment of these markets is likely to increase the quantity of reproducible real estate, and lower rents on real estate. It may also reduce the amplitude of speculative real estate price movements and dampen the business cycle.
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Bibliographic InfoPaper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1006.
Length: 25 pages
Date of creation: Dec 1991
Date of revision:
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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA
Find related papers by JEL classification:
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services
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