Hedging house price risk with futures contracts after the bubble burst |
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| Affiliation: | 1. Federal Reserve Bank of Richmond, Charlotte Office, PO Box 30248, Charlotte, NC 28230, United States;2. Department of Finance, Auburn University, 303 College of Business, Auburn, AL 36849, United States;3. Department of Finance and Business Economics, University of Washington, Box 353200, Seattle, WA 98195, United States;1. Department of Accounting and Finance, School of Business & Economics, North Carolina A& T State University, 1621 East Market Street, Greensboro, NC 27411, United States;2. University of Cape Town, School of Economics, Research Unit in Behavioural Economics and Neuroeconomics, Private Bag 5-3b, Rondebosch 7701, South Africa;3. Institute for Innovation and Technology Management, Ted Rogers School of Management, Ryerson University, 575 Bay, Toronto, ON M5G 2C5, Canada;1. Imam Mohammad Ibn Saud Islamic University (IMSIU), Saudi Arabia;2. LARTIGE, University of Kairouan, Tunisia;3. College of Business, Zayed University, Abu Dhabi, United Arab Emirates;4. South Ural State University, Lenin Prospect 76, Chelyabinsk, 454080, Russian Federation;5. Department of Finance and Economics, Taibah University, Saudi Arabia;6. Saudi Authority for Data and Artificial Intelligence, Saudi Arabia;1. Department of Economics, University of Bologna, piazza Scaravilli n.2, I-40126 Bologna, Italy;2. Business School, Edge Hill University, St Helens Road, Ormskirk, Lancashire L39 4QP, United Kingdom;3. Department of Economics, University of Guelph, Guelph, Ontario N1G 2W1, Canada;1. University of Hagen, Department of Economics, Universitaetsstrasse 41, 58097 Hagen, Germany;2. University of Hannover, School of Economics and Management, Koenigsworther Platz 1, 30167 Hannover, Germany |
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| Abstract: | This paper extends the existing literature on managing house price risk. While previous work finds that a hedger would have reduced a large amount of variance in housing returns in Las Vegas, Nevada using Chicago Mercantile Exchange (CME) futures contracts, we show that neither static nor dynamic strategies would have maintained an effective hedge during the significant decline in housing prices. The inability to hedge house price risk using CME futures contracts ultimately calls into question the long-term viability of housing futures. |
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| Keywords: | Hedging Residential real estate Housing Financial crisis |
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