Housing 'Beta' Common Risk Factor in Returns of Stocks

Abstract

This study proposes the housing "beta" and tests whether the housing "beta" is a significant determinant for stock returns in a multifactor framework. We hypothesize that the housing market is a systematic risk factor given the impact of the housing market on the overall economy and economics growth of most countries, as well as the effect of homes in the overall wealth of individual investors. The housing market directly affect GDP growth through residential fixed investment and housing services. In addition, the housing market indirectly impacts economic activities via consumption. Our results who that the housing "bets" is positive and significant in explaining stock returns after controlling several other factors from the prior literature. This relationship is stronger as expected, during the financial crisis period. We conducted several robustness checks using a different study period and housing market indices and obtain results which are consistent with our main findings.

Keywords: Housing market; Housing beta; Stock returns; Asset pricing

JEL Classification: G01, G12, R31