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Derivatives Markets for Home Prices

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Abstract

The establishment recently of risk management vehicles for home prices is described. The potential value of such vehicles, once they become established, is seen in consideration of the inefficiency of the market for single family homes. Institutional changes that might derive from the establishment of these new markets are described. An important reason for these beginnings of real estate derivative markets is the advance in home price index construction methods, notably the repeat sales method, that have appeared over the last twenty years. Psychological barriers to the full success of such markets are discussed.

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File URL: http://cowles.econ.yale.edu/P/cd/d16a/d1648.pdf
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Bibliographic Info

Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1648.

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Length: 27 pages
Date of creation: Mar 2008
Date of revision:
Handle: RePEc:cwl:cwldpp:1648

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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

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Keywords: Home price index; Housing futures; Real estate futures; Real estate derivatives; Home equity insurance; Repeat sales indices; Hedging demand;

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References

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  1. Karl Case & John Quigley, 2008. "How Housing Booms Unwind: Income Effects, Wealth Effects, and Feedbacks through Financial Markets," International Journal of Housing Policy, Taylor & Francis Journals, Taylor & Francis Journals, vol. 8(2), pages 161-180.
  2. Todd Sinai & Nicholas S. Souleles, 2005. "Owner-occupied housing as a hedge against rent risk," Working Papers 05-10, Federal Reserve Bank of Philadelphia.
  3. Case, Karl E & Shiller, Robert J, 1989. "The Efficiency of the Market for Single-Family Homes," American Economic Review, American Economic Association, vol. 79(1), pages 125-37, March.
  4. Edward E. Leamer, 1982. "Let's Take the Con Out of Econometrics," UCLA Economics Working Papers 239, UCLA Department of Economics.
  5. Karl E. Case & Robert J. Shiller, 1990. "Forecasting Prices and Excess Returns in the Housing Market," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 18(3), pages 253-273.
  6. Robert J. Shiller, 1993. "Measuring Asset Values for Cash Settlement in Derivative Markets: Hedonic Repeated Measures indices and Perpetual Futures," NBER Technical Working Papers 0131, National Bureau of Economic Research, Inc.
  7. Case, Karl E. & Quigley, John M. & Shiller, Robert J., 2003. "Home-buyers, Housing and the Macroeconomy," Berkeley Program on Housing and Urban Policy, Working Paper Series, Berkeley Program on Housing and Urban Policy qt0v59r392, Berkeley Program on Housing and Urban Policy.
  8. Yongheng Deng & John M. Quigley & Robert Van Order, 2000. "Mortgage Terminations, Heterogeneity and the Exercise of Mortgage Options," Econometrica, Econometric Society, Econometric Society, vol. 68(2), pages 275-308, March.
  9. Joseph Gyourko & Christopher Mayer & Todd Sinai, 2013. "Superstar Cities," American Economic Journal: Economic Policy, American Economic Association, vol. 5(4), pages 167-99, November.
  10. Case, Bradford & Quigley, John M, 1991. "The Dynamics of Real Estate Prices," The Review of Economics and Statistics, MIT Press, vol. 73(1), pages 50-58, February.
  11. Joseph Gyourko & Eduardo Morales & Charles Nathanson & Edward Glaeser, 2011. "Housing Dynamics," 2011 Meeting Papers 307, Society for Economic Dynamics.
  12. Jonathan H. Mark & Michael A. Goldberg, 1984. "Alternative Housing Price Indices: An Evaluation," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 12(1), pages 30-49.
  13. David Genesove & Christopher J. Mayer, 1993. "Equity and time to sale in the real estate market," Working Papers, Federal Reserve Bank of Boston 93-6, Federal Reserve Bank of Boston.
  14. Loomes, Graham & Sugden, Robert, 1982. "Regret Theory: An Alternative Theory of Rational Choice under Uncertainty," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 92(368), pages 805-24, December.
  15. Paul D. Childs & Steven H. Ott & Timothy J. Riddiough, 2002. "Optimal Valuation of Noisy Real Assets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 30(3), pages 385-414.
  16. Andrew Caplin & William Goetzmann & Eric Hangen & Barry Nalebuff & Elisabeth Prentice & John Rodkin & Matthew Spiegel & Tom Skinner, 2003. "Home Equity Insurance: A Pilot Project," Yale School of Management Working Papers, Yale School of Management ysm372, Yale School of Management, revised 23 Jan 2006.
  17. Palmquist, Raymond B, 1980. "Alternative Techniques for Developing Real Estate Price Indexes," The Review of Economics and Statistics, MIT Press, vol. 62(3), pages 442-48, August.
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Cited by:
  1. Robert M. Townsend & Shawn Cole & Jeremy Tobacman & Xavier Gine & James Ian Vickery & Petia Topalova, 2012. "Barriers to Household Risk Management," IMF Working Papers 12/195, International Monetary Fund.
  2. Shawn Cole & Xavier Gine & Jeremy Tobacman & Petia Topalova & Robert Townsend & James Vickery, 2013. "Barriers to Household Risk Management: Evidence from India," American Economic Journal: Applied Economics, American Economic Association, vol. 5(1), pages 104-35, January.
  3. Najeb Masoud & Glenn Hardaker, 2012. "The impact of financial development on economic growth: Empirical analysis of emerging market countries," Studies in Economics and Finance, Emerald Group Publishing, Emerald Group Publishing, vol. 29(3), pages 148-173, August.
  4. Robert J. Hill & Daniel Melser & Iqbal Syed, 2009. "Measuring a Boom and Bust: The Sydney Housing Market 2001-2006," Discussion Papers, School of Economics, The University of New South Wales 2009-08, School of Economics, The University of New South Wales.
  5. M.I. Dröes & H. Garretsen & W.J.J. Manshanden, 2012. "The Diversification Benefits of Free Trade in House Value," Working Papers, Utrecht School of Economics 12-03, Utrecht School of Economics.
  6. Ing-Haw Cheng & Sahil Raina & Wei Xiong, 2013. "Wall Street and the Housing Bubble," NBER Working Papers 18904, National Bureau of Economic Research, Inc.
  7. Jeske, Karsten & Krueger, Dirk & Mitman, Kurt, 2013. "Housing, mortgage bailout guarantees and the macro economy," Journal of Monetary Economics, Elsevier, vol. 60(8), pages 917-935.
  8. Dröes, Martijn I. & Hassink, Wolter H.J., 2013. "House price risk and the hedging benefits of home ownership," Journal of Housing Economics, Elsevier, Elsevier, vol. 22(2), pages 92-99.

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