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In this article, we develop a model for the evolution of real estate prices. A wide range of inputs, including stochastic interest rates and changing demands for the asset, are considered. Maximizing their expected utility, home owners make optimal sale decisions given these changing market conditions. Using these optimal sale decisions, we simulate the implied evolution of housing prices providing insights into the …
Prepayment risk embedded in fixed-rate mortgages forms a significant fraction of a financial institution's exposure. The embedded prepayment option bears the same interest rate risk as an exotic interest rate swap with a suitable stochastic notional. Focusing on penalty-free prepayment because of the contract owner's relocation to a new house, we model the prepayment option value as an European-type interest rate rec…
This paper studies the investment decision of the Spanish households using a unique data set, the Spanish Survey of Household Finance (EFF). We propose a theoretical model in which households, given a fixed investment in housing, allocate their net wealth across bank time deposits, stocks, and mortgage. Besides considering housing as an indivisible and illiquid asset that restricts the portfolio choice decision, we t…
What causes house prices to rise and fall? Economists identify household access to credit as a crucial factor. "Loan-to-Value" and "Debt-to-GDP" ratios are the standard measures for credit access. However, these measures fail to explain the depth of the Dutch housing bust after the 2009 Financial Crisis. This work is the first to model household lending capacity based on the formulas that Dutch banks use in the mortg…
This paper combines and develops the models in Lastrapes (2002) and Mankiw & Weil (1989), which enables us to analyze the effects of interest rate and population growth shocks on housing price in one integrated framework. Based on this model, we carry out policy simulations to examine whether the housing (stock or flow) tax reduces the housing price fluctuations caused by interest rate or population growth shocks. Si…
Housing markets play a crucial role in economies and the collapse of a real-estate bubble usually destabilizes the financial system and causes economic recessions. We investigate the systemic risk and spatiotemporal dynamics of the US housing market (1975-2011) at the state level based on the Random Matrix Theory (RMT). We identify rich economic information in the largest eigenvalues deviating from RMT predictions an…
Geographic diversification is fundamental to risk mitigation among investors and insurers of housing, mortgages, and mortgage-related derivatives. To characterize diversification potential, we provide estimates of integration, spatial correlation, and contagion among US metropolitan housing markets. Results reveal a high and increasing level of integration among US markets over the decade of the 2000s, especially in …
This paper explores integration and contagion among US metropolitan housing markets. The analysis applies Federal Housing Finance Agency (FHFA) house price repeat sales indexes from 384 metropolitan areas to estimate a multi-factor model of U.S. housing market integration. It then identifies statistical jumps in metropolitan house price returns as well as MSA contemporaneous and lagged jump correlations. Finally, the…
The paper discusses various practical consequences of treating economics and finance as an inherently dynamic and chaotic system. On the theoretical side this looks at the general applicability of the market-making pricing approach to economics in general. The paper also discuses the consequences of the endogenous creation of liquidity and the role of liquidity as a state variable. On the practical side, proposals ar…
ABSTRACT The repo market has been viewed as a potential source of financial instability since the 2007 to 2009 financial crisis, based in part on findings that margins increased sharply in a segment of this market. This paper provides evidence suggesting that there was no system‐wide run on repo. Using confidential data on tri‐party repo, a major segment of this market, we show that, the level of margins and the amou…
In its capacity as debt issuer, the state has played a growing role in financial life over the last 30 years. To examine this role and connect it to shadow banking, the paper develops the concept of the ‘repo trinity’, which captures a set of policy objectives that central banks outlined after the 1998 Russian crisis, the first systemic crisis of collateral-based finance. The repo trinity connected financial stabilit…
Abstract We identify fixed-income mutual funds as an important contributor to the unusually high selling pressure in liquid asset markets during the COVID-19 crisis. We show that mutual funds experienced pronounced investor outflows amplified by their liquidity transformation. In meeting redemptions, funds followed a pecking order by first selling their liquid assets, including Treasuries and high-quality corporate b…
Abstract This paper examines the price differences between very liquid on-the-run U.S. Treasury securities and less liquid off-the-run securities over the on/off cycle. Comparing pairs of securities in time-series regressions allows us to disregard any fixed cross-sectional differences between securities. Also, since the liquidity of Treasury notes varies predictably over time, we can distinguish between current and …
We study the monetary-transmission mechanism with a data set that includes quarterly observations of every insured U.S. commercial bank from 1976 to 1993. We find that the impact of monetary policy on lending is stronger for banks with less liquid balance sheets—i.e., banks with lower ratios of securities to assets. Moreover, this pattern is largely attributable to the smaller banks, those in the bottom 95 percent of…
ABSTRACT We propose a theory of securities market under‐ and overreactions based on two well‐known psychological biases: investor overconfidence about the precision of private information; and biased self‐attribution, which causes asymmetric shifts in investors' confidence as a function of their investment outcomes. We show that overconfidence implies negative long‐lag autocorrelations, excess volatility, and, when m…
This article introduces the concept of a statistical arbitrage opportunity (SAO). In a finite-horizon economy, a SAO is a zero-cost trading strategy for which (i) the expected payoff is positive, and (ii) the conditional expected payoff in each final state of the economy is nonnegative. Unlike a pure arbitrage opportunity, a SAO can have negative payoffs provided that the average payoff in each final state is nonnega…
This paper presents a novel approach to evaluating blue-chip art as a viable asset class for portfolio diversification. We present the Arte-Blue Chip Index, an index that tracks 100 top-performing artists based on 81,891 public transactions from 157 artists across 584 auction houses over the period 1990 to 2024. By comparing blue-chip art price trends with stock market fluctuations, our index provides insights into t…
In this paper Portfolio Optimization techniques were used to determine the most favorable investment portfolio. In particular, stock indices of three companies, namely Microsoft Corporation, Christian Dior Fashion House and Shevron Corporation were evaluated. Using this data the amounts invested in each asset when a portfolio is chosen on the efficient frontier were calculated. In addition, the Portfolio with minimum…
Housing Starts — Rate-sensitive construction activity with multiplier effects across materials and labor.
CPI Shelter Component — The largest CPI bucket, lagged versus spot rents, creating policy communication traps.
MBS Prepayment Speed — Refinancing and turnover driven cash-flow uncertainty in agency mortgages.
Housing Affordability (Economy).
Mortgage Rate Lock Volume (Economy).
Housing Starts US — Macroeconomic indicator or cycle concept used in regime diagnosis.
Housing Starts Euro Area — Macroeconomic indicator or cycle concept used in regime diagnosis.
Housing Starts UK — Macroeconomic indicator or cycle concept used in regime diagnosis.
Housing Starts Japan — Macroeconomic indicator or cycle concept used in regime diagnosis.
Housing Starts China — Macroeconomic indicator or cycle concept used in regime diagnosis.
Housing Starts EM Asia — Macroeconomic indicator or cycle concept used in regime diagnosis.
Housing Starts LatAm — Macroeconomic indicator or cycle concept used in regime diagnosis.
Housing Starts CEEMEA — Macroeconomic indicator or cycle concept used in regime diagnosis.
Housing Starts Canada — Macroeconomic indicator or cycle concept used in regime diagnosis.
Housing Starts Australia — Macroeconomic indicator or cycle concept used in regime diagnosis.
Housing Starts Nordics — Macroeconomic indicator or cycle concept used in regime diagnosis.
Housing Starts ASEAN — Macroeconomic indicator or cycle concept used in regime diagnosis.
Housing Starts India — Macroeconomic indicator or cycle concept used in regime diagnosis.
Housing Starts Korea — Macroeconomic indicator or cycle concept used in regime diagnosis.
Housing Starts Brazil — Macroeconomic indicator or cycle concept used in regime diagnosis.
Housing Starts Mexico — Macroeconomic indicator or cycle concept used in regime diagnosis.
Housing Starts South Africa — Macroeconomic indicator or cycle concept used in regime diagnosis.
Housing Starts Turkey — Macroeconomic indicator or cycle concept used in regime diagnosis.
Housing Starts Poland — Macroeconomic indicator or cycle concept used in regime diagnosis.
Housing Starts Indonesia — Macroeconomic indicator or cycle concept used in regime diagnosis.
Housing Starts headline — Macroeconomic indicator or cycle concept used in regime diagnosis.
Housing Starts core — Macroeconomic indicator or cycle concept used in regime diagnosis.
Housing Starts real-time — Macroeconomic indicator or cycle concept used in regime diagnosis.
Housing Starts revision — Macroeconomic indicator or cycle concept used in regime diagnosis.
Housing Starts surprise — Macroeconomic indicator or cycle concept used in regime diagnosis.
Housing Macropru US (Macro Policy).
Housing Macropru Euro Area (Macro Policy).
Housing Macropru UK (Macro Policy).
Housing Macropru Japan (Macro Policy).
Housing Macropru China (Macro Policy).
Housing Macropru EM Asia (Macro Policy).
Housing Affordability (Economy).
Housing Macropru ASEAN (Macro Policy).
Housing Macropru Australia (Macro Policy).
Housing Macropru Brazil (Macro Policy).
Housing Macropru Canada (Macro Policy).
Housing Macropru CEEMEA (Macro Policy).
Housing Macropru China (Macro Policy).
Housing Macropru easing (Macro Policy).
Housing Macropru EM Asia (Macro Policy).
Housing Macropru Euro Area (Macro Policy).
Housing Macropru India (Macro Policy).
Housing Macropru Indonesia (Macro Policy).
Housing Macropru Japan (Macro Policy).
Housing Macropru Korea (Macro Policy).
Housing Macropru LatAm (Macro Policy).
Housing Macropru Mexico (Macro Policy).
Housing Macropru Nordics (Macro Policy).
Housing Macropru Poland (Macro Policy).
Housing Macropru reflation (Macro Policy).
Housing Macropru risk-off (Macro Policy).
Housing Macropru risk-on (Macro Policy).
Housing Macropru South Africa (Macro Policy).
Housing Macropru stagflation (Macro Policy).
Housing Macropru tightening (Macro Policy).