 Geographic Dependence and Diversification in House Price Returns: The Role of Leverage*Andréas Heinen, Mi Lim Kim and Malika Hamadi Journal of Financial Econometrics, 2024, vol. 22, issue 1, 297-334 Abstract: We analyze the time variation in the average dependence within a set of regional monthly house price index returns in a regime-switching multivariate copula model with a high and a low dependence regime. Using equidependent Gaussian copulas, we show that the dependence of house price returns varies across time with changes in credit market conditions, which reduces the gains from the geographic diversification of real estate and mortgage portfolios. More specifically, we show that a decrease in leverage, measured by the loan-to-value ratio, and to a lesser extent an increase in mortgage rates, are associated with a higher probability of moving to and staying in the high dependence regime. Keywords: copula; diversification; loan to value; mortgage; regime-switching; time-varying dependence (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:oup:jfinec:v:22:y:2024:i:1:p:297-334. Ordering information: This journal article can be ordered from Access Statistics for this article Journal of Financial Econometrics is currently edited by Allan Timmermann and Fabio Trojani More articles in Journal of Financial Econometrics from Oxford University Press Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK. Contact information at EDIRC. |
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