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Index-Based Futures and Options Markets in Real Estate

Karl Case, Robert Shiller () and Allan N. Weiss

No 1006, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: Most institutional and individual portfolios are very undiversified in real estate: many hold no real estate at all, many have holdings highly concentrated in certain regions or types of real estate. The risk of these concentrated holdings is not hedged. We propose here that cash-settled futures and options markets be opened on real estate to better allow diversification and hedging, and show that these markets solve problems that have hampered other real estate hedging media in the past. Related institutions, such as home equity insurance, might develop around the futures and options markets. The establishment of these markets is likely to increase the quantity of reproducible real estate, and lower rents on real estate. It may also reduce the amplitude of speculative real estate price movements and dampen the business cycle.

Keywords: Real estate; prices; portfolio choice (search for similar items in EconPapers)
JEL-codes: G11 L85 (search for similar items in EconPapers)
Date: 1991-12
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