Hedging Housing Risk
An unusually rich source of data on housing prices in Stockholm is used to analyze the investment implications of housing choices. This empirical analysis derives market-wide price and return series for housing investment during a 13-year period, and it also provides estimates of the individual-specific, idiosyncratic, variation in housing returns. Because the idiosyncratic component follows an autocorrelated process, the analysis of portfolio choice is dependent upon the holding period. We analyze the composition of household investment portfolios containing housing, common stocks, stocks in real estate holding companies, bonds and t-bills. For short holding periods, the efficient portfolio contains essentially no housing. For longer periods, low risk portfolios contain 15 to 50 percent housing. These results suggest that there are large potential gains from policies or institutions that would permit households to hedge their lumpy investments in housing. We estimate the potential value of hedges in reducing risk to households, yet yielding the same investment returns. The value is surprisingly large, especially to poorer homeowners.
|Date of creation:||Dec 2000|
|Date of revision:|
|Contact details of provider:|| Postal: 40 bd. du Pont d'Arve, Case postale 3, CH - 1211 Geneva 4|
Phone: 41 22 / 312 09 61
Fax: 41 22 / 312 10 26
Web page: http://www.swissfinanceinstitute.ch
More information through EDIRC
References listed on IDEAS
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 F. Kain & John M. Quigley, 1975. "Housing Markets and Racial Discrimination: A Microeconomic Analysis," NBER Books, National Bureau of Economic Research, Inc, number kain75-1, September.
- Tracy M. Turner, 2003. "Does Investment Risk Affect the Housing Decisions of Families?," Economic Inquiry, Western Economic Association International, vol. 41(4), pages 675-691, October.
- Englund, Peter & Ioannides, Yannis M., 1997.
"House Price Dynamics: An International Empirical Perspective,"
Journal of Housing Economics,
Elsevier, vol. 6(2), pages 119-136, June.
- Englund, P. & Ioannides, Y.M., 1996. "House Price Dynamics: An International Empirical Perspective," Papers 1996-01, Uppsala - Working Paper Series.
- Karl E. Case & Robert J. Shiller, 1988.
"The Efficiency of the Market for Single-Family Homes,"
NBER Working Papers
2506, National Bureau of Economic Research, Inc.
- Case, Karl E & Shiller, Robert J, 1989. "The Efficiency of the Market for Single-Family Homes," American Economic Review, American Economic Association, vol. 79(1), pages 125-37, March.
- 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.
- Englund, Peter, 1999. "The Swedish Banking Crisis: Roots and Consequences," Oxford Review of Economic Policy, Oxford University Press, vol. 15(3), pages 80-97, Autumn.
- Harvey S. Rosen & Kenneth T. Rosen & Douglas Holtz-Eakin, 1983.
"Housing Tenure, Uncertainty, and Taxation,"
NBER Working Papers
1168, National Bureau of Economic Research, Inc.
- Brueckner, Jan K, 1997. "Consumption and Investment Motives and the Portfolio Choices of Homeowners," The Journal of Real Estate Finance and Economics, Springer, vol. 15(2), pages 159-80, October.
- Karl E. Case & Robert J. Shiller, 1990.
"Forecasting Prices and Excess Returns in the Housing Market,"
NBER Working Papers
3368, National Bureau of Economic Research, Inc.
- Karl E. Case & Robert J. Shiller, 1990. "Forecasting Prices and Excess Returns in the Housing Market," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 18(3), pages 253-273.
- Jorion, Philippe, 1985. "International Portfolio Diversification with Estimation Risk," The Journal of Business, University of Chicago Press, vol. 58(3), pages 259-78, July.
- Englund, Peter & Quigley, John M. & Redfearn, Christian L., 1998. "Improved Price Indexes for Real Estate: Measuring the Course of Swedish Housing Prices," Journal of Urban Economics, Elsevier, vol. 44(2), pages 171-196, September.
- Goetzmann, William Nelson, 1993.
"The Single Family Home in the Investment Portfolio,"
The Journal of Real Estate Finance and Economics,
Springer, vol. 6(3), pages 201-22, May.
- Goetzmann, W.N., 1990. "The Single Family Home In The Investment Portfolio," Papers fb-_90-15, Columbia - Graduate School of Business.
- Sweeney, James L., 1974. "Housing unit maintenance and the mode of tenure," Journal of Economic Theory, Elsevier, vol. 8(2), pages 111-138, June.
- Heaton, John & Lucas, Deborah, 2000. "Portfolio Choice in the Presence of Background Risk," Economic Journal, Royal Economic Society, vol. 110(460), pages 1-26, January.
- Flavin, Marjorie & Yamashita, Takashi, 1998. "Owner-Occupied Housing and the Composition of the Household Portfolio over the Life Cycle," University of California at San Diego, Economics Working Paper Series qt89x293v9, Department of Economics, UC San Diego.
- Richard Barkham & David Geltner, 1995. "Price Discovery in American and British Property Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 23(1), pages 21-44.
When requesting a correction, please mention this item's handle: RePEc:fam:rpseri:rp26. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marilyn Barja)
If references are entirely missing, you can add them using this form.