Hedging House Price Risk: Portfolio Choice With Housing Futures

De Jong, Frank; Driessen, Joost; Van Hemert, Otto

doi:10.2139/ssrn.740364

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Hedging House Price Risk: Portfolio Choice With Housing Futures

49 Pages Posted: 13 Jun 2005 Last revised: 17 May 2015

See all articles by Frank De Jong

Frank De Jong

Tilburg University - Department of Finance

Joost Driessen

Tilburg University - Tilburg University School of Economics and Management; Tilburg University - Center for Economic Research (CentER)

We assess the economic benefits of having access to housing futures for homeowning investors, using a model for the portfolio choice between stocks, bonds of various maturity, different mortgage types, and housing futures. We compare the utility gains of housing futures with the economic benefits of two other important housing-related portfolio decisions: (i) incorporating the housing exposure in financial portfolio choice and (ii) mortgage choice. Our analysis indicates that the portfolio implications and welfare improvements of the housing futures are small. This is mainly due to the large remaining idiosyncratic house price risk which cannot be hedged using futures written on a city-level house price index.

Keywords: Housing futures, portfolio choice, mortgage

JEL Classification: G11

Suggested Citation: Suggested Citation

De Jong, Frank and Driessen, Joost and van Hemert, Otto, Hedging House Price Risk: Portfolio Choice With Housing Futures (July 31, 2008). Available at SSRN: https://ssrn.com/abstract=740364 or http://dx.doi.org/10.2139/ssrn.740364