Hedging House Price Risk with CME Futures Contracts: The Case of Las Vegas Residential Real Estate

Bertus, Mark; Hollans, Harris; Swidler, Steve

doi:10.1007/s11146-008-9129-z

Cited by 31 publications

(21 citation statements)

References 12 publications

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“…These observations have highlighted the dynamics of A-REIT futures. Comparable results have also been documented by Bertus et al (2008) in the US housing futures market.…”

Section: Sub-period Analysissupporting

confidence: 66%

Hedging effectiveness of REIT futures

Lee

2012

Journal of Property Investment &Amp; Finance

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If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information. About Emerald www.emeraldinsight.comEmerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products and additional customer resources and services.Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation. AbstractPurpose -The hedging effectiveness of real estate investment trust (REIT) futures as a critical issue in response to the global REIT market has been extremely volatile in recent years, however few studies have been placed on this area. This study aims to fill in this gap and examine the hedging effectiveness of Australian and Japanese REIT futures over 2002-2010. Design/methodology/approach -The analysis of this study involves two stages. The first stage is to estimate optimal hedge ratios. A variety of hedging methods is employed, including a traditional hedge, an ordinary least squares (OLS) model and a bivariate GARCH model. Thereafter, the hedging effectiveness of these strategies is assessed individually. Findings -The empirical results show REIT futures are effective hedging instruments in which a risk reduction of 37 per cent-78 per cent (34 per cent-52 per cent) for Australian ( Japanese) REITs is evident. Importantly, the results also reveal that REIT futures outperform other hedging instruments in which a weaker risk reduction is found by stock, interest rate and foreign currency futures contracts. Moreover, the hedging effectiveness of REIT futures is dynamic and varies over time. Practical implications -The findings enable more informed and practical investment decision-making regarding the role of REIT futures in risk management. Originality/value -This paper, as far as the authors are aware, is the first study to offer empirical evidence of the risk-reduction effectiveness of REIT futures. The hedging effectiveness of REIT futures is also compared to other hedging instruments for the first time.

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“…These observations have highlighted the dynamics of A-REIT futures. Comparable results have also been documented by Bertus et al (2008) in the US housing futures market.…”

Section: Sub-period Analysissupporting

confidence: 66%

Hedging effectiveness of REIT futures

Lee

2012

Journal of Property Investment &Amp; Finance

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“…1 Quarterly median house sale price (1996)(1997)(1998)(1999)(2000)(2001)(2002)(2003)(2004)(2005)(2006)(2007) Flips represent a significant portion of all transaction during our period of analysis. The sample is similar to the data in Bertus et al (2008) and includes home sales in Clark County, Nevada encompassing seven tax districts: Las Vegas City (district 200), North Las Vegas (districts 250 and 254), Sunrise Manor (district 340), Spring Valley (district 417), Paradise (district 470) and Henderson (district 505). 3 The data come from the Clark County tax records and include up to the three most recent sales for each property.…”

Section: Datamentioning

confidence: 99%

An Empirical Analysis of Residential Property Flipping

Depken¹,

Hollans

Swidler

2009

J Real Estate Finan Econ

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“…With the exception of several builders discussing the use of interest rate swaps to hedge their investments or holdings of mortgage-backed securities, none of the firms' annual reports mentioned 6 The trading of futures and options was launched by the Chicago Mercantile Exchange, based on the Case-Shiller housing index in 2006; trading volume, however, remains low. Moreover, as suggested in Bertus et al (2008), it might be difficult for a builder to manage the housing price risk with CME real estate futures, because the Case-Shiller index is based on repeat sales and has little correlation with new home appreciation. Table 3 Summary statistics and correlation table for variables used in the aggregate analysis.…”

Section: Empirical Methodology and Resultsmentioning

confidence: 99%

The determinants of homebuilder stock price exposure to lumber: Production cost versus housing demand

Liu

Tang

2012

Journal of Housing Economics

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a b s t r a c tWe study the economic linkage between homebuilder stock market performance and commodity futures market information on a major component of building materials-lumber. The price of lumber plays a dual role in determining homebuilder profits: it represents a production input cost and serves as a future housing demand indicator. Using all US publicly listed homebuilder stocks, we show that the housing demand effect dominates the builder-lumber relationship. This effect is robust even after we control for the Federal Housing Finance Association (FHFA) housing price index (HPI). Our results further indicate that the slope of the lumber futures curve serves as a cross-market signal of future housing demand and thus of homebuilder stock market performance.

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Hedging House Price Risk with CME Futures Contracts: The Case of Las Vegas Residential Real Estate

Abstract: Hedging, Risk management, Housing, Residential real estate, G13, R31,

Cited by 31 publications

References 12 publications

Hedging effectiveness of REIT futures

Hedging effectiveness of REIT futures

An Empirical Analysis of Residential Property Flipping

The determinants of homebuilder stock price exposure to lumber: Production cost versus housing demand

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