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 US data provide a broader perspective on our findings.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Wisconsin Center for Urban Land Economic Research in its series Wisconsin-Madison CULER working papers with number 02-03.
Date of creation:
Date of revision:
Contact details of provider:
Postal: 975 University Avenue, Madison, WI 53706-1323
Phone: (608) 262-8676
Fax: (608) 265-2738
Web page: http://wiscinfo.doit.wisc.edu/realestate/paper.htm
More information through EDIRC
Other versions of this item:
- E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
- G1 - Financial Economics - - General Financial Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-10-08 (All new papers)
- NEP-IAS-2002-10-08 (Insurance Economics)
- NEP-RMG-2002-10-08 (Risk Management)
- NEP-URE-2002-10-08 (Urban & Real Estate Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- John Y. Campbell & Luis M. Viceira, 1996.
"Consumption and Portfolio Decisions When Expected Returns are Time Varying,"
NBER Working Papers
5857, National Bureau of Economic Research, Inc.
- John Y. Campbell & Luis M. Viceira, 1999. "Consumption And Portfolio Decisions When Expected Returns Are Time Varying," The Quarterly Journal of Economics, MIT Press, vol. 114(2), pages 433-495, May.
- John Y. Campbell & Luis M. Viceira, 1998. "Consumption and Portfolio Decisions When Expected Returns Are Time Varying," Harvard Institute of Economic Research Working Papers 1835, Harvard - Institute of Economic Research.
- Viceira, Luis & Campbell, John, 1999. "Consumption and Portfolio Decisions When Expected Returns are Time Varying," Scholarly Articles 3163266, Harvard University Department of Economics.
- Joao Cocco, 2000. "Hedging House Price Risk With Incomplete Markets," Computing in Economics and Finance 2000 317, Society for Computational Economics.
- Karl E. Case & Robert J. Shiller & Allan N. Weiss, 1991. "Index-Based Futures and Options Markets in Real Estate," Cowles Foundation Discussion Papers 1006, Cowles Foundation for Research in Economics, Yale University.
- Markus Haavio & Heikki Kauppi, 2006.
"House price fluctuations and residential sorting,"
2006 Meeting Papers
774, Society for Economic Dynamics.
- Charles Leung, 2007.
"Equilibrium Correlations of Asset Price and Return,"
The Journal of Real Estate Finance and Economics,
Springer, vol. 34(2), pages 233-256, February.
- Charles Ka Yui Leung, 2005. "Equilibrium Correlation of Asset Price and Return," Departmental Working Papers _175, Chinese University of Hong Kong, Department of Economics.
- Charles Ka Yui Leung, 2005. "Equilibrium Correlation of Asset Price and Return," Discussion Papers 00017, Chinese University of Hong Kong, Department of Economics.
- Sousa, Ricardo M., 2009.
"Wealth effects on consumption: evidence from the euro area,"
Working Paper Series
1050, European Central Bank.
- Ricardo M. Sousa, 2009. "Wealth Effetcs on Consumption: Evidence from the euro area," NIPE Working Papers 12/2009, NIPE - Universidade do Minho.
- Jan Rouwendal, 2009. "Housing Wealth and Household Portfolios in an Ageing Society," De Economist, Springer, vol. 157(1), pages 1-48, March.
- Deng, Yongheng & Quigley, John M., 2008.
"Index Revision, House Price Risk, and the Market for House Price Derivatives,"
Berkeley Program on Housing and Urban Policy, Working Paper Series
qt4sw0x30t, Berkeley Program on Housing and Urban Policy.
- Yongheng Deng & John Quigley, 2008. "Index Revision, House Price Risk, and the Market for House Price Derivatives," The Journal of Real Estate Finance and Economics, Springer, vol. 37(3), pages 191-209, October.
- Sock Yong Phang, 2009.
"Affordable homeownership policy: implications for housing markets,"
14-2009, Singapore Management University, School of Economics, revised Nov 2009.
- Sock-Yong Phang, 2009. "Affordable homeownership policy : implications for housing markets," Microeconomics Working Papers 23052, East Asian Bureau of Economic Research.
- Dröes, Martijn I. & Hassink, Wolter H.J., 2013. "House price risk and the hedging benefits of home ownership," Journal of Housing Economics, Elsevier, vol. 22(2), pages 92-99.
- Juerg Syz & Paolo Vanini & Marco Salvi, 2008. "Property Derivatives and Index-Linked Mortgages," The Journal of Real Estate Finance and Economics, Springer, vol. 36(1), pages 23-35, January.
- Quigley, John M., 2006. "Real estate portfolio allocation: The European consumers' perspective," Journal of Housing Economics, Elsevier, vol. 15(3), pages 169-188, September.
- Ricardo M. Sousa, 2007. "Wealth Shocks and Risk Aversion," NIPE Working Papers 28/2007, NIPE - Universidade do Minho.
- Buckley, Robert & Karaguishiyeva, Gulmira & Van Order, Robert & Vecvagare, Laura, 2003. "Comparing mortgage credit risk policies : an options-based approach," Policy Research Working Paper Series 3047, The World Bank.
- Ortalo-Magne, Francois & Rady, Sven, 2002. "Tenure choice and the riskiness of non-housing consumption," Journal of Housing Economics, Elsevier, vol. 11(3), pages 266-279, September.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Krichel).
If references are entirely missing, you can add them using this form.