Deriving the Rent Versus Buy Decision in the Absence of Expected Home Price Appreciation or Risk Premia

12 Pages Posted: 28 Aug 2012

See all articles by Cristian Voicu

Cristian Voicu

Investment Technology Group

Michael Seiler

College of William and Mary - Finance

Date Written: June 1, 2011

Abstract

The paper extends the work of Poterba (1984, 1991) and Voicu and Seiler (2011) by mathematically deriving the optimum rent versus buy decision without any information relating to expected home price appreciation or risk premia. Using Chicago Mercantile Exchange housing futures contracts, this study empirically demonstrates that renting was financially preferred to owning over the sample period. These findings are consistent with recent work by Beracha and Johnson (2011) even though an entirely different approach is taken.

Keywords: Rent versus Buy, Housing Derivatives, CME Futures

JEL Classification: G11, G13, R29

Suggested Citation

Voicu, Cristian and Seiler, Michael, Deriving the Rent Versus Buy Decision in the Absence of Expected Home Price Appreciation or Risk Premia (June 1, 2011). Available at SSRN: https://ssrn.com/abstract=2136605 or http://dx.doi.org/10.2139/ssrn.2136605

Cristian Voicu

Investment Technology Group ( email )

44 Farnsworth Street
9th Floor
Boston, MA 02210
United States

Michael Seiler (Contact Author)

College of William and Mary - Finance ( email )

VA
United States

HOME PAGE: http://mason.wm.edu/faculty/directory/seiler_m.php

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