Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/322870 
Year of Publication: 
2012
Series/Report no.: 
Discussion Papers Series No. 12-03
Publisher: 
Utrecht University, Utrecht School of Economics, Tjalling C. Koopmans Research Institute, Utrecht
Abstract: 
This paper finds that homeowners could substantially reduce house price risk if they would reinvest their housing wealth in a market portfolio of houses. Free trade in the value of the house among homeowners would allow them to do so. To quantify the diversification benefits of free trade in house value, we estimate simple CAPM and APT models based on a detailed panel dataset of house price changes in the Netherlands. We find that about 92 to 96 percent of house price risk is diversifiable. In most cases, these diversification benefits outweigh the hedging effectiveness of house price futures.
Subjects: 
house price risk
free trade
financial market
diversification
futures
Document Type: 
Working Paper

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