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Housing Futures Markets: Early Evidence of Return and Risk

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  • Donald Jud
  • Daniel Winkler

Abstract

This paper examines risks and returns in the newly created market for housing futures traded on the Chicago Mercantile Exchange (CME). The estimates of contract returns on housing futures average about 8.6% annually, with a standard deviation of 12.6%. Returns show little relationship to the movements in the corresponding housing price indexes. When standardized for maturity and time, risk premiums on housing contracts appear to be higher in Boston, Chicago, Denver, New York, and San Francisco and lower in Las Vegas, Los Angeles, Miami, San Diego, and Washington, DC. The level of risk premiums appears to have been falling since the trading in housing futures was initiated on the CME. Finally, the findings reveal that risk premiums tend to be higher on contracts where the basis is high and the time to maturity is short.

Suggested Citation

  • Donald Jud & Daniel Winkler, 2008. "Housing Futures Markets: Early Evidence of Return and Risk," Journal of Housing Research, Taylor & Francis Journals, vol. 17(1), pages 1-12, January.
    • Handle: RePEc:taf:rjrhxx:v:17:y:2008:i:1:p:1-12
    DOI: 10.1080/10835547.2008.12091983
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