The 311th Wenlan Financial Forum

Abstract：

The idiosyncratic risk of capital gains in the housing market is large but declines with the holding period, implying that the excess capital gain returns of short-term flippers are obtained at the cost of bearing high idiosyncratic risk. Using the comprehensive housing transaction records in Hong Kong from 1993 to 2021, we find that although flippers obtained higher annualized returns than long-term buyers by 8.76 percentage points on average, the Sharpe ratio of flippers is lower than that of long term buyers. The appraisal ratio of novice flippers is significantly lower than that of experienced long term buyers and is merely comparable to that of novice long-term buyers. Only experienced flippers, who have at least 2 prior trading experiences and constitute less than 20% of the flippers, outperform long-term buyers in terms of risk-adjusted returns. Employing the unique urban and policy setting in Hong Kong, we also provide new empirical evidence that information quality and market liquidity explain the term structure of idiosyncratic risk.

Speaker Introduction：

Ke Xu is a Ph.D. candidate in the Department of Real Estate and Construction at the University of Hong Kong. Her research interests primarily focus on housing policy, household finance, real estate investment, and real estate risks. One of her significant research projects explores the trade-off between unique risks and returns in the real estate market, particularly the performance differences between short-term speculators and long-term investors in the housing market. By analyzing comprehensive real estate transaction records in Hong Kong from 1993 to 2021, this article reveals that while speculators achieve an average annualized return rate 8.76 percentage points higher than long-term buyers, their Sharpe ratios (risk-adjusted returns) are lower than those of long-term buyers.