Dynamic correlation: A tool hedging house-price risk?
AbstractDynamic correlation models demonstrate that the relationship between interest rates and housing prices is non-constant. Estimates reveal statistically significant time fluctuations in correlations between housing price indexes and Treasury bonds, the S&P 500 Index, and stock prices of mortgage-related companies. In some cases, hedging effectiveness can be improved by moving from constant to dynamic hedge ratios. Empirics reported here point to the possibility that incorrect assumptions of constant correlation could lead to mis-pricing in the mortgage industry and beyond.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 26368.
Date of creation: 2007
Date of revision:
Publication status: Published in Journal of Real Estate Portfolio Management 1.13(2007): pp. 17-28
Real Estate; Time-Varying Risk; Time-Dependent Variance; Risk Premium; Risk Aversion; Housing Risk; Portfolio Choice; Ecological Rationality; Behavioral Economics; Bounded Rationality;
Find related papers by JEL classification:
- D03 - Microeconomics - - General - - - Behavioral Microeconomics; Underlying Principles
- R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General
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