Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/274891 
Year of Publication: 
2022
Citation: 
[Journal:] Journal of Risk and Financial Management [ISSN:] 1911-8074 [Volume:] 15 [Issue:] 8 [Article No.:] 369 [Year:] 2022 [Pages:] 1-16
Publisher: 
MDPI, Basel
Abstract: 
Underlying idiosyncratic and illiquidity risks are suppressed in infrequently reported indexes of house prices and rents. Idiosyncratic risks result from bid-ask spreads for prices and rents. Time series autocovariances generate a distribution of prices and rents. Capital gains and rent-price ratios are transforms of these distributions, generating cross-sectional idiosyncratic volatility. Housing data are infrequent and usually made available every month. The monthly-quarterly volatility ratios of house prices and rents and their spreads estimate unobserved daily fluctuations and illiquidity risks. Including idiosyncratic and illiquidity risks, a U.S. house has a standard deviation in returns of 8.7% annually for three decades after 1990. With a mean excess return of 3.7%, the Sharpe ratio of 0.42 is comparable to the S&P 500. Excluding spreads, the house Sharpe ratio is 0.69. House returns respond to liquidity. A 1% increase in volume raises returns by 0.8%.
Subjects: 
volatility
bid&#x2013
ask spreads
house returns
idiosyncratic risk
illiquidity
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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