Time-varying diversification strategies: The roles of state-level housing assets in optimal portfolios
International Review of Economics & Finance, 2018, vol. 55, issue C, 145-172
The study extracts quantitative implications of dynamic asset allocation strategies by analyzing time-varying roles of intertemporal hedging demands in multi-asset portfolios. It provides evidence of positive hedging demands for housing assets and spatial demand substitutions across different state-level housing markets. Risk-averse investors tend to switch their hedging demands from California to other states. The risk-diversification strategies provide insights into the vulnerability of some states to housing bubbles, and successfully characterize the recent housing boom-bust cycle. The framework governing return predictability suggests that stock and some state-level housing price returns can make one-period-ahead forecasts of housing asset prices.
Keywords: Asset allocation; Intertemporal hedging demand; Spatial demand substitution; Housing boom-bust cycle; Return predictability (search for similar items in EconPapers)
JEL-codes: C32 G11 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:55:y:2018:i:c:p:145-172
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