Hedging House Price Risk with Futures Contracts after the Bubble Burst

18 Pages Posted: 6 Jun 2014 Last revised: 13 Feb 2015

See all articles by Patrick J. Schorno

Patrick J. Schorno

KPMG, USA

Steve Swidler

Auburn University - College of Business

Michael D. Wittry

Ohio State University (OSU) - Department of Finance

Date Written: June 19, 2014

Abstract

This paper extends the existing literature on managing house price risk. While previous work finds that a hedger would have reduced a large amount of variance in housing returns in Las Vegas, Nevada using Chicago Mercantile Exchange (CME) futures contracts, we show that neither static nor dynamic strategies would have maintained an effective hedge during the significant decline in housing prices. The inability to hedge house price risk using CME futures contracts ultimately calls into question the long-term viability of housing futures.

Keywords: Hedging, Residential real estate, Housing, Financial crisis

JEL Classification: G01, G13, R31

Suggested Citation

Schorno, Patrick J. and Swidler, Steve M. and Wittry, Michael D., Hedging House Price Risk with Futures Contracts after the Bubble Burst (June 19, 2014). Finance Research Letters, 11(4), 332-340, December 2014. Available at SSRN: https://ssrn.com/abstract=2446598 or http://dx.doi.org/10.2139/ssrn.2446598

Patrick J. Schorno (Contact Author)

KPMG, USA ( email )

United States

Steve M. Swidler

Auburn University - College of Business ( email )

Auburn, AL 36849
United States
334-844-3014 (Phone)
334 -844-4960 (Fax)

HOME PAGE: http://www.business.auburn.edu/~swidlst/

Michael D. Wittry

Ohio State University (OSU) - Department of Finance ( email )

854 Fisher Hall
2100 Neil Avenue
Columbus, OH 43210-1144
United States
614-292-3217 (Phone)

HOME PAGE: http://https://fisher.osu.edu/people/wittry.2

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