Hedging House Price Risk with Futures Contracts after the Bubble Burst
18 Pages Posted: 6 Jun 2014 Last revised: 13 Feb 2015
Date Written: June 19, 2014
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: Suggested Citation