Working Paper: NBER ID: w13962
Authors: Robert J. Shiller
Abstract: The establishment recently of risk management vehicles for home prices is described. The potential value of such vehicles, once they become established, is seen in consideration of the inefficiency of the market for single family homes. Institutional changes that might derive from the establishment of these new markets are described. An important reason for these beginnings of real estate derivative markets is the advance in home price index construction methods, notably the repeat sales method, that have appeared over the last twenty years. Psychological barriers to the full success of such markets are discussed.
Keywords: Derivatives markets; Home prices; Risk management; Real estate
JEL Codes: G13; R31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Establishment of derivatives markets for home prices (G13) | Improve risk management for homeowners and investors (G51) |
| Absence of derivatives markets (G19) | Inefficiencies in the real estate market (R31) |
| Absence of hedging instruments (G19) | Significant economic risks in the real estate market (R31) |
| Creation of derivatives markets (G19) | Enhance liquidity in cash markets for real estate (G19) |
| Psychological barriers (D91) | Impeded establishment and success of derivatives markets (G18) |
| Regret theory (D81) | Reluctance to sell during downturns (G19) |
| Lack of effective hedging mechanisms (F65) | Vulnerability of the real estate market to price fluctuations (R31) |
| Repeat sales method (C59) | More accurate tracking of home price trends (R31) |