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Using Value-at-Risk to Estimate Downside Residential Market Risk

Author

Listed:
  • Changha Jin

    () (The University of Texas - Pan American)

  • Alan J. Ziobrowski

    () (Georgia State University)

Abstract

Conditional Value-at-Risk (VaR) is currently used by the banking industry to measure market risk as it relates to equity risk, currency risk, interest rate risk and commodity risk. We estimate the downside market risk in residential housing using various conditional volatility models. Although there is controversy surrounding the use of VaR as a risk management tool, we attempt to mitigate these concerns using various approaches in assumptions and modeling. Furthermore, an alternative portfolio is constructed minimizing VaR exposure as a portfolio constraint. We find that the conditional volatility models are especially useful when the current downside residential market risk is time-period dependent because the traditional risk measure based on a longer time series is less influenced by short-term extremes.

Suggested Citation

  • Changha Jin & Alan J. Ziobrowski, 2011. "Using Value-at-Risk to Estimate Downside Residential Market Risk," Journal of Real Estate Research, American Real Estate Society, vol. 33(3), pages 389-414.
  • Handle: RePEc:jre:issued:v:33:n:3:2011:p:389-414
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    References listed on IDEAS

    as
    1. Solnik, B H, 1974. "The International Pricing of Risk: An Empirical Investigation of the World Capital Market Structure," Journal of Finance, American Finance Association, vol. 29(2), pages 365-378, May.
    2. David M. Geltner, 1993. "Estimating Market Values from Appraised Values without Assuming an Efficient Market," Journal of Real Estate Research, American Real Estate Society, vol. 8(3), pages 325-346.
    3. Robert N. McCauley & Steven A. Zimmer, 1989. "Explaining international differences in the cost of capital," Quarterly Review, Federal Reserve Bank of New York, issue Sum, pages 7-28.
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    Cited by:

    1. Stavros Degiannakis & Apostolos Kiohos, 2014. "Multivariate modelling of 10-day-ahead VaR and dynamic correlation for worldwide real estate and stock indices," Journal of Economic Studies, Emerald Group Publishing, vol. 41(2), pages 216-232, March.
    2. Dag Einar Sommervoll & Jan de Haan, 2014. "Homes and Castles: Should We Care about Idiosyncratic Risk?," Land Economics, University of Wisconsin Press, vol. 90(4), pages 700-716.
    3. Stavros Degiannakis & Apostolos Kiohos, 2014. "Multivariate modelling of 10-day-ahead VaR and dynamic correlation for worldwide real estate and stock indices," Journal of Economic Studies, Emerald Group Publishing, vol. 41(2), pages 216 - 232, March.

    More about this item

    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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