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Hedging House Price Risk: Portfolio Choice With Housing FuturesFrank De JongTilburg University - Department of Finance Joost DriessenTilburg University - Department of Finance; CentER Tilburg University Otto Van HemertNew York University (NYU) - Department of Finance July 31, 2008 Abstract: 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.
Number of Pages in PDF File: 49 Keywords: Housing futures, portfolio choice, mortgage JEL Classification: G11 working papers seriesDate posted: June 13, 2005 ; Last revised: July 31, 2008Suggested CitationContact Information
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