Estimation of Hedge Ratio and Hedging Effectiveness Using Traded Apartment Price Index in Seoul

Ryu Kang-min; Chang-Moo Lee

doi:10.15793/kspr.2014.82..007

The Korea Spatial Planning Review

2014, 82(), pp.97-106
DOI : 10.15793/kspr.2014.82..007
Publisher : 국토연구원
Research Area :

Ryu Kang-min ¹, Chang-Moo Lee ²

¹한양대학교
²한양대학교

ABSTRACT

In many conturies real estate is most valuable aseet. And house price are volatile and real estate exposure is not traded as easy and flexible as stock and bonds. These make houses risky assets. But there are no markets that would allow individuals and institutions to hedge their risks. The establishment of Insurance Commodity linked home price index is likely to hedge away large risk in housing market. Many housing owners can’t hedge their housing risk due to the lack of understanding in real estate derivatives market. We estimate the hedging effects to protect against the housing price changes using home price index. The result indicate that the hedge ratio is estimated almost 1:1 ratio, and hedging effectiveness is about 58%.
KEYWORDS

Insurance Commodity, Traded House Price Index, Hedge Ratio, Hedging Effectiveness
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