Title: Geographic dependence and diversification in house price returns: The role of leverage
Authors: Andreas Heinen - Universite de Cergy Pontoise (France) [presenting]
Mi Lim Kim - Universite de Cergy Pontoise (France)
Abstract: The aim is to analyze time variation in the average dependence within a set of regional monthly house price index returns in a regime switching multivariate copula model with a high and a low dependence regime. Using equidependent Gaussian copulas, we show that the dependence of house price returns varies across time, which reduces the gains from the geographic diversification of real estate and mortgage portfolios. More specifically, we show that a decrease in leverage, and to a lesser extent an increase in mortgage rates, is associated with a higher probability of moving to and staying in the high dependence regime.