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Can Metropolitan Housing Risk be Diversified? A Cautionary Tale from the Recent Boom and Bust
Author(s)
Date Issued
2012-07
Date Available
2012-11-23T16:54:01Z
Abstract
Geographic diversification is fundamental to risk mitigation among investors and insurers of housing, mortgages, and mortgage-related derivatives. To characterize diversification potential, we provide estimates of integration, spatial correlation, and contagion among US metropolitan housing markets. Results reveal a high and increasing level of integration among US markets over the decade of the 2000s, especially in California. We apply integration results to assess the risk of alternative housing investment portfolios. Portfolio simulation indicates reduced diversification potential and increased risk in the wake of estimated increases in metropolitan housing market integration. Research findings provide new insights regarding the synchronous non-performance of geographically-disparate MBS investments during the late 2000s.
Sponsorship
Science Foundation Ireland
Type of Material
Working Paper
Publisher
University College Dublin. Geary Institute
Series
UCD Geary Institute Discussion Paper Series
WP2012/17
Copyright (Published Version)
2012, UCD Geary Institute
Subject – LCSH
Housing--Prices--United States
Housing--Prices--Mathematical models
Real estate investment--Rate of return
Language
English
Status of Item
Not peer reviewed
This item is made available under a Creative Commons License
File(s)
Name
Cotter, Gabriel, and Roll Can Metro Housing Risk be Diversified 7-11-2012.pdf
Size
1.77 MB
Format
Owning collection
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