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Housing, investment opportunities and intertemporal asset pricing

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  • Kwon, Ji Ho

Abstract

We derive and estimate a new Intertemporal Capital Asset Pricing Model (ICAPM) that assigns housing a direct and explicit role. In this framework, the sufficient statistics that summarize the investment opportunity set include not only the stock market return but also house price growth. The ICAPM, specified with state variables that forecast house price growth, accounts for a considerable share of the cross-sectional dispersion in stock returns. In model comparisons, our ICAPM with housing performs better than other established asset pricing models. All innovations in our model earn significant risk premia, and most incremental improvements in R2 relative to the benchmark models are statistically significant. Taken together, these findings suggest that cross-sectional dispersion in returns stems from differences across stocks in their ability to hedge against time-varying house prices.

Suggested Citation

  • Kwon, Ji Ho, 2026. "Housing, investment opportunities and intertemporal asset pricing," Finance Research Letters, Elsevier, vol. 106(C).
    • Handle: RePEc:eee:finlet:v:106:y:2026:i:c:s1544612326008159
    DOI: 10.1016/j.frl.2026.110287
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    Keywords

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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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