Optimal portfolio choices and the determination of housing rents under housing market uncertainty

Fan, G.-Z., Pu, M., Deng, X. ORCID: https://orcid.org/0000-0003-4896-6333 and Ong, S. E. (2018) Optimal portfolio choices and the determination of housing rents under housing market uncertainty. Journal of Housing Economics, 41. pp. 200-217. ISSN 1096-0791 doi: 10.1016/j.jhe.2018.06.003

Abstract/Summary

This study proposes a utility indifference-based model to investigate the pricing issue of house rents under housing market uncertainty. Our model not only allows for the crucial features in the housing market, such as market incompleteness and high idiosyncratic risk, but also the interaction of households’ house tenure choices with their financial asset holdings. Our model provides interesting insights into the hedging of house market risk and determination of housing rents. In addition to the parameters describing the expected changes and volatility on stock and house returns, we also show that individual precautionary savings motive, idiosyncratic risk premium, and the correlation between stock and housing have important implications for the determination of housing rents. We also test the model predictions empirically using the data from major Asian markets and the empirical results better support the model predictions.

Item Type	Article
URI	https://reading-clone.eprints-hosting.org/id/eprint/114484
Item Type	Article
Refereed	Yes
Divisions	No Reading authors. Back catalogue items Henley Business School > Real Estate and Planning
Publisher	Elsevier
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