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Hedging House Price Risk: Portfolio Choice With Housing Futures

49 Pages Posted: 13 Jun 2005 Last revised: 17 May 2015

Frank De Jong

Tilburg University - Department of Finance

Joost Driessen

Tilburg University - Department of Finance; CentER Tilburg University

Otto Van Hemert

Man AHL

Date Written: July 31, 2008

Abstract

We assess the economic benefits of having access to housing futures for homeowning investors, using a model for the portfolio choice between stocks, bonds of various maturity, different mortgage types, and housing futures. We compare the utility gains of housing futures with the economic benefits of two other important housing-related portfolio decisions: (i) incorporating the housing exposure in financial portfolio choice and (ii) mortgage choice. Our analysis indicates that the portfolio implications and welfare improvements of the housing futures are small. This is mainly due to the large remaining idiosyncratic house price risk which cannot be hedged using futures written on a city-level house price index.

Keywords: Housing futures, portfolio choice, mortgage

JEL Classification: G11

Suggested Citation

De Jong, Frank and Driessen, Joost and Van Hemert, Otto, Hedging House Price Risk: Portfolio Choice With Housing Futures (July 31, 2008). Available at SSRN: https://ssrn.com/abstract=740364 or http://dx.doi.org/10.2139/ssrn.740364

Frank De Jong

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Joost Driessen

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

CentER Tilburg University ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Otto Van Hemert (Contact Author)

Man AHL ( email )

Riverbank House
2 Swan Lane
London, EC4R 3AD
United Kingdom

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