The Cross-Section of Expected Housing Returns

63 Pages Posted: 18 Jan 2019

See all articles by Esther Eiling

Esther Eiling

University of Amsterdam - Amsterdam Business School

Erasmo Giambona

Syracuse University - Whitman School of Management - Finance Department; James D. Kuhn Center for Real Estate

Ricardo Lopez Aliouchkin

Syracuse University - Whitman School of Management

Patrick Tuijp

University of Amsterdam - Finance Group; Ortec Finance

Date Written: January 8, 2019

Abstract

This paper performs a large-scale empirical asset pricing analysis of the cross-section of residential real-estate returns. Using monthly housing returns for 9,831 different zip codes across 178 Metropolitan Statistical Areas (MSAs), we estimate, for each MSA, a multifactor model with systematic housing-market risk (U.S. and local MSA) and idiosyncratic zip code-specific housing risk. We find that U.S. and MSA housing risks are positively priced in 26% and 22% of the MSAs, respectively. The evidence that MSA-level housing-market risk is priced in roughly a fifth of all MSAs runs counter to the common belief that the U.S. housing market is locally segmented. We also find that idiosyncratic risk is positively priced only in 22% of the MSAs, suggesting that the under-diversification of households' real estate portfolios is not widely priced. In the last part of the paper, we link MSA variation in the pricing of risk to MSA fundamentals. We find that illiquidity is important for the pricing of the U.S. housing-market risk, while homeownership increases the probability that MSA-level risk is positively priced. Idiosyncratic risk is more likely to be positively priced in MSAs with less undevelopable land and lower liquidity, indicating that under-diversification is more binding when households face fewer housing supply constraints and more illiquidity.

Keywords: Expected Housing Returns, Idiosyncratic Risk, Systematic Risk, Market Segmentation

JEL Classification: G12, R30

Suggested Citation

Eiling, Esther and Giambona, Erasmo and Lopez Aliouchkin, Ricardo and Tuijp, Patrick, The Cross-Section of Expected Housing Returns (January 8, 2019). Available at SSRN: https://ssrn.com/abstract=3312391 or http://dx.doi.org/10.2139/ssrn.3312391

Esther Eiling

University of Amsterdam - Amsterdam Business School ( email )

Plantage Muidergracht 12
Amsterdam, 1018 TV
Netherlands

Erasmo Giambona

Syracuse University - Whitman School of Management - Finance Department; James D. Kuhn Center for Real Estate ( email )

721 University Avenue
RM 120-D
Syracuse, NY 13244-2450
United States
315 443-4885 (Phone)

Ricardo Lopez Aliouchkin (Contact Author)

Syracuse University - Whitman School of Management ( email )

721 University Ave
Syracuse, NY NY 13244
United States
+13154433672 (Phone)

HOME PAGE: http://www.ricardolopezaliouchkin.com/

Patrick Tuijp

University of Amsterdam - Finance Group ( email )

Roetersstraat 18
Amsterdam, 1018WB
Netherlands

Ortec Finance ( email )

Orly Centre
Barajasweg 10
Amsterdam, 1043 CP
Netherlands

Register to save articles to
your library

Register

Paper statistics

Downloads
43
Abstract Views
247
PlumX Metrics