Chasing housing prices?

Allen Atkins, Kevin C.H. Chiang, Ming Long Lee

Research output: Contribution to journalArticle

1 Scopus citations

Abstract

If a person or organization is planning to buy real estate in the future but is unable or unwilling to buy it now, how can they best "hedge" this purchase? In what class of asset should they invest their money until they are ready to purchase the real estate? This paper uses Monte Carlo simulation and bootstrap techniques to investigate the effectiveness of using traditional asset classes in managing the long-term risks associated with the future purchase of real estate. We find that the best "purchase early" hedge for both residential and commercial real estate is small value stocks. Small value stocks would be the most likely to provide returns at least as good as real estate and they would be least likely to suffer losses relative to real estate. The effectiveness of the hedge increases the longer the time horizon of the investor. Large value stocks and equity REIT's are also quite good but not as good as small value stocks. Other asset classes are not nearly as effective. The least effective asset class is T-Bills.

Original languageEnglish (US)
Pages (from-to)237-244
Number of pages8
JournalJournal of Applied Business Research
Volume28
Issue number2
DOIs
StatePublished - Jan 1 2012

Keywords

  • Housing prices
  • Reit
  • Risk management

ASJC Scopus subject areas

  • Business and International Management

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