Working Paper


Stuart A. Gabriel
John Cotter
Karl E. Case



assets accounting g10 risk factors housing prices united states real estate investment rate of return asset pricing g11 house price returns g12

Housing risk and return : evidence from a housing asset-pricing model (2009)

Abstract This paper investigates the risk-return relationship in determination of housing asset pricing. In so doing, the paper evaluates behavioral hypotheses advanced by Case and Shiller (1988, 2002, 2009) in studies of boom and post-boom housing markets. The paper specifies and tests a housing asset pricing model (H-CAPM), whereby expected returns of metropolitan-specific housing markets are equated to the market return, as represented by aggregate US house price time-series. We augment the model by examining the impact of additional risk factors including aggregate stock market returns, idiosyncratic risk, momentum, and Metropolitan Statistical Area (MSA) size effects. Further, we test the robustness of H-CAPM results to inclusion of controls for socioeconomic variables commonly represented in the house price literature, including changes in employment, affordability, and foreclosure incidence. Consistent with the traditional CAPM, we find a sizable and statistically significant influence of the market factor on MSA house price returns. Moreover we show that market betas have varied substantially over time. Also, we find the basic housing CAPM results are robust to the inclusion of other explanatory variables, including standard measures of risk and other housing market fundamentals. Additional tests of the validity of the model using the Fama-MacBeth framework offer further strong support of a positive risk and return relationship in housing. Our findings are supportive of the application of a housing investment risk-return framework in explanation of variation in metro-area cross-section and time-series US house price returns. Further, results strongly corroborate Case-Shiller behavioral research indicating the importance of speculative forces in the determination of U.S. housing returns.
Collections Ireland -> University College Dublin -> Institutes and Centres
Ireland -> University College Dublin -> Financial Mathematics Computation Cluster
Ireland -> University College Dublin -> FMC² Research Collection
Ireland -> University College Dublin -> Geary Institute
Ireland -> University College Dublin -> Geary Institute Working Papers

Full list of authors on original publication

Stuart A. Gabriel, John Cotter, Karl E. Case

Experts in our system

Stuart A. Gabriel
University College Dublin
Total Publications: 8
John Cotter
University College Dublin
Total Publications: 93