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

Listed author(s):
  • Changha Jin


    (The University of Texas - Pan American)

  • Alan J. Ziobrowski


    (Georgia State University)

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.

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Article provided by American Real Estate Society in its journal journal of Real Estate Research.

Volume (Year): 33 (2011)
Issue (Month): 3 ()
Pages: 389-414

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Handle: RePEc:jre:issued:v:33:n:3:2011:p:389-414
Contact details of provider: Postal:
American Real Estate Society Clemson University School of Business & Behavioral Science Department of Finance 401 Sirrine Hall Clemson, SC 29634-1323

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Order Information: Postal: Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323
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