Finance and Economics Discussion Series - A Real Options Approach to Housing Investment (Paperback)

In this paper, we study investments by existing homeowners to improve their homes. The value of a house is modeled as the expected net present value of a perpetual stream of service flows emanating from the attributes of the house. An important innovation in our model is that the set of house attributes evolves over time according to the investment decisions of the homeowner. The homeowner's decisions to invest in house attributes are modeled as real options. Our model of investment embeds a multi-factor term structure model and a general model of the evolution of service flows. We employ numeric simulations to explore the properties of the investment model, and to motivate our empirical test of the model. Using a panel from the American Housing Survey, we test two implications of the real option theory. We test whether investment is more likely when the spread between the return to housing and the cost of capital is wide, and we test whether greater spread volatility depresses investment. The results indicate that homeowner investment behavior is consistent with the theory, even after controlling for business cycle, aging, tenure and for-sale influences.

General

Imprint:	Bibliogov
Country of origin:	United States
Release date:	February 2013
First published:	February 2013
Authors:	Chris Downing
Dimensions:	246 x 189 x 2mm (L x W x T)
Format:	Paperback - Trade
Pages:	42
ISBN-13:	978-1-288-71716-3
Categories:	Books > Social sciences > Politics & government > General
LSN:	1-288-71716-4
Barcode:	9781288717163

Is the information for this product incomplete, wrong or inappropriate? Let us know about it.

Does this product have an incorrect or missing image? Send us a new image.

Is this product missing categories? Add more categories.

Review This Product

No reviews yet - be the first to create one!