An examination of the risk-return relation in the Australian housing market

Chyi Lin Lee (School of Business, University of Western Sydney, Penrith, Australia)

International Journal of Housing Markets and Analysis

ISSN: 1753-8270

Publication date: 5 June 2017

Abstract

Purpose

Extensive studies have investigated the relation between risk and return in the stock and major asset markets, whereas little studies have been done for housing, particularly the Australian housing market. This study aims to determine the relationship between housing risk and housing return in Australia.

Design/methodology/approach

The analysis of this study involves two stages. The first stage is to estimate the presence of volatility clustering effects. Thereafter, the relation between risk and return in the Australian housing market is assessed by using a component generalised autoregressive conditional heteroscedasticity-in-mean (C-CARCH-M) model.

Findings

The empirical results show that there is a strong positive risk-return relationship in all Australian housing markets. Specifically, comparable results are also evident in all housing markets in various Australian capital cities, reflecting that Australian home buyers, in general, are risk reverse and require a premium for higher risk level. This could be attributed the unique characteristics of the Australian housing market. In addition, there is evidence to suggest that a stronger volatility clustering effect than previously documented in the daily case.

Practical implications

The findings enable more informed and practical investment decision-making regarding the relation between housing return and housing risk.

Originality/value

This paper is the first study to offer empirical evidence of the risk-return relationship in the Australian housing market. Besides, this is the first housing price volatility study that utilizes daily data.

Keywords

Citation

Lee, C.L. (2017), "An examination of the risk-return relation in the Australian housing market", International Journal of Housing Markets and Analysis, Vol. 10 No. 3, pp. 431-449. https://doi.org/10.1108/IJHMA-07-2016-0052

Publisher

:

Emerald Publishing Limited

Copyright © 2017, Emerald Publishing Limited

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