publication . Article . 2013

Understanding the Puzzling Risk-Return Relationship for Housing

Lu Han;
Open Access
  • Published: 16 Jan 2013 Journal: The Review of Financial Studies, volume 26, issue 4, pages 877-928
Standard theory predicts a positive relationship between risk and return, yet recent data show that housing returns vary positively with risk in some markets but negatively in others. This paper rationalizes these cross-market differences in the risk-return relationship for housing, and in so doing, explains the puzzling negative relationship. The paper shows that when the current house provides a hedge against the risk associated with the future housing consumption, households are willing to accept a lower return to compensate for risk, thus weakening the positive risk-return relationship. Further, in markets with less elastic housing supply and a growing popul...
free text keywords: Economics and Econometrics, Accounting, Finance, Incentive, business.industry, business, Standard theory, Economics, Financial economics, Negative relationship, Population, education.field_of_study, education, Positive relationship, Hedge (finance), Risk–return spectrum
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