Can housing risk be diversified? A cautionary tale from the housing boom and bust

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Title: Can housing risk be diversified? A cautionary tale from the housing boom and bust
Authors: Cotter, John
Gabriel, Stuart A.
Roll, Richard
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Date: Sep-2014
Abstract: This study evaluates the effectiveness of geographic diversification in reducing housing investment risk. To characterize diversification potential, we estimate spatial correlation and integration among 401 US metropolitan housing markets. The 2000s boom brought a marked uptrend in housing market integration associated with eased residential lending standards and rapid growth in private mortgage securitization. As boom turned to bust, macro factors, including employment and income fundamentals, contributed importantly to the trending up in housing return integration. Portfolio simulations reveal substantially lower diversification potential and higher risk in the wake of increased market integration.
Funding Details: Science Foundation Ireland
Type of material: Working Paper
Publisher: University College Dublin. Geary Institute
Copyright (published version): 2014 the authors
Keywords: IntegrationHousing risk diversificationHousing returns
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Language: en
Status of Item: Not peer reviewed
Appears in Collections:Geary Institute Working Papers

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