Housing Risk and the Cross-Section of Returns Across Many Asset Classes

Fisher College of Business Working Paper No. 2020-03-008

Charles A. Dice Working Paper No. 2020-08

61 Pages Posted: 10 May 2020 Last revised: 13 Dec 2024

See all articles by Sai Ma

Sai Ma

Board of Governors of the Federal Reserve System

Shaojun Zhang

The Ohio State University

Date Written: May 7, 2020

Abstract

This paper documents that a single-factor model based on shocks to the residential investment share, or the ratio of residential-to-nonresidential investment, exhibits strong explanatory power for expected returns across various characteristic-sorted portfolios in equity and other asset classes. The residential investment share captures time-varying demand for housing services and is a state variable of the economy. Consequently, innovations to the share emerge as a risk factor in asset prices in the cross-section. The empirical results are robust to controlling for other factor models based on durable consumption, financial intermediaries, household heterogeneity, and return-based multifactor models designed to price these assets.

Keywords: asset classes, cross section, risk, housing, demand shocks

JEL Classification: G10, G11, G12

Suggested Citation

Ma, Sai and Zhang, Shaojun, Housing Risk and the Cross-Section of Returns Across Many Asset Classes (May 7, 2020). Fisher College of Business Working Paper No. 2020-03-008, Charles A. Dice Working Paper No. 2020-08, Available at SSRN: https://ssrn.com/abstract=3595662 or http://dx.doi.org/10.2139/ssrn.3595662

Sai Ma

Board of Governors of the Federal Reserve System ( email )

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HOME PAGE: http://saimaecon.com

Shaojun Zhang (Contact Author)

The Ohio State University

2100 Neil Avenue
Columbus, OH 43210-1144
United States

HOME PAGE: http://sites.google.com/view/zhangshaojun

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