Options
Housing risk and return : evidence from a housing asset-pricing model
Author(s)
Date Issued
2009-11
Date Available
2011-01-06T14:39:54Z
Abstract
This paper investigates the risk-return relationship in determination of housing asset pricing. In so doing, the paper evaluates behavioral hypotheses advanced by Case and Shiller (1988, 2002, 2009) in studies of boom and post-boom housing markets. The paper specifies and tests a housing asset pricing model (H-CAPM), whereby expected returns of metropolitan-specific housing markets are equated to the market return, as represented by aggregate US house price time-series. We augment the model by examining the impact of additional risk factors including aggregate stock market returns, idiosyncratic risk, momentum, and Metropolitan Statistical Area (MSA) size effects. Further, we test the robustness of H-CAPM results to inclusion of controls for socioeconomic variables commonly represented in the house price literature, including changes in employment, affordability, and foreclosure incidence. Consistent with the traditional CAPM, we find a sizable and statistically significant influence of the market factor on MSA house price returns. Moreover we show that market betas have varied substantially over time. Also, we find the basic housing CAPM results are robust to the inclusion of other explanatory variables, including standard measures of risk and other housing market fundamentals. Additional tests of the validity of the model using the Fama-MacBeth framework offer further strong support of a positive risk and return relationship in housing. Our findings are supportive of the application of a housing investment risk-return framework in explanation of variation in metro-area cross-section and time-series US house price returns. Further, results strongly corroborate Case-Shiller behavioral research indicating the importance of speculative forces in the determination of U.S. housing returns.
Sponsorship
Not applicable
Type of Material
Working Paper
Publisher
University College Dublin. Geary Institute
Series
UCD Geary Institute Discussion Paper Series
WP 10 05
Classification
G10
G11
G12
Subject – LCSH
Assets (Accounting)
Housing--Prices--United States
Real estate investment--Rate of return
Web versions
Language
English
Status of Item
Not peer reviewed
This item is made available under a Creative Commons License
File(s)
Owning collection
Views
2333
Acquisition Date
Apr 18, 2024
Apr 18, 2024
Downloads
977
Last Month
2
2
Acquisition Date
Apr 18, 2024
Apr 18, 2024