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Using Value-at-Risk to Estimate Downside Residential Market Risk

Author

Listed:
  • Changha Jin

    (The University of Texas - Pan American)

  • Alan J. Ziobrowski

    (Georgia State University)

Abstract

Conditional Value-at-Risk (VaR) is currently used by the banking industry to measure market risk as it relates to equity risk, currency risk, interest rate risk and commodity risk. We estimate the downside market risk in residential housing using various conditional volatility models. Although there is controversy surrounding the use of VaR as a risk management tool, we attempt to mitigate these concerns using various approaches in assumptions and modeling. Furthermore, an alternative portfolio is constructed minimizing VaR exposure as a portfolio constraint. We find that the conditional volatility models are especially useful when the current downside residential market risk is time-period dependent because the traditional risk measure based on a longer time series is less influenced by short-term extremes.

Suggested Citation

  • Changha Jin & Alan J. Ziobrowski, 2011. "Using Value-at-Risk to Estimate Downside Residential Market Risk," Journal of Real Estate Research, American Real Estate Society, vol. 33(3), pages 389-414.
    • Handle: RePEc:jre:issued:v:33:n:3:2011:p:389-414
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    Cited by:

    1. Dag Einar Sommervoll & Jan de Haan, 2014. "Homes and Castles: Should We Care about Idiosyncratic Risk?," Land Economics, University of Wisconsin Press, vol. 90(4), pages 700-716.
    2. Stavros Degiannakis & Apostolos Kiohos, 2014. "Multivariate modelling of 10-day-ahead VaR and dynamic correlation for worldwide real estate and stock indices," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 41(2), pages 216-232, March.
    3. Stavros Degiannakis & Apostolos Kiohos, 2014. "Multivariate modelling of 10-day-ahead VaR and dynamic correlation for worldwide real estate and stock indices," Journal of Economic Studies, Emerald Group Publishing, vol. 41(2), pages 216 - 232, March.
    4. Zouheir Mighri & Raouf Jaziri, 2023. "Long-Memory, Asymmetry and Fat-Tailed GARCH Models in Value-at-Risk Estimation: Empirical Evidence from the Global Real Estate Markets," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 21(1), pages 41-97, March.
    5. Chyi Lin Lee, 2017. "An examination of the risk-return relation in the Australian housing market," International Journal of Housing Markets and Analysis, Emerald Group Publishing Limited, vol. 10(3), pages 431-449, June.
    6. Chang, Kuang-Liang, 2020. "An investigation on mixed housing-cycle structures and asymmetric tail dependences," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).

    More about this item

    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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