The Housing Futures Market

The Chicago Mercantile Exchange (CME) in May 2006 began trading housing futures contracts and options, in response to the growing concern with housing risk. This paper reviews the development and operation of the CME housing futures market. The findings indicate that speculators earn significant ris...

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Bibliographic Details
Published in:Journal of real estate literature 2009-01, Vol.17 (2), p.181-203
Main Authors: Jud, G. Donald, Winkler, Daniel T.
Format: Article
Language:English
Subjects:
Commodities
Commodity futures
Financial investments
Futures contracts
Futures markets
Housing
Investment risk
Market prices
Review Articles
Risk premiums
Speculators
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Summary:The Chicago Mercantile Exchange (CME) in May 2006 began trading housing futures contracts and options, in response to the growing concern with housing risk. This paper reviews the development and operation of the CME housing futures market. The findings indicate that speculators earn significant risk premiums for assuming the risk of future fluctuations in housing prices. These returns and risks, however, appear to be substantially different than the risks and returns earned by those who invest in housing directly. The CME housing futures market offers a way for individuals, businesses, and others to transfer housing risk, which would seem to be important given the importance of housing to household wealth and the overall economy, but low trading volumes indicate that few have been willing to utilize this mechanism.
ISSN:0927-7544
1573-8809
DOI:10.1080/10835547.2009.12090257