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Investor sentiment and risk appetite of real estate security market

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Abstract:

This article proposes a new model to measure the risk appetite in absence of option prices. Without options transaction, traditional measurements cannot be made. This article establishes a Risk Appetite (RA) indicator by way of change measure and simulation, with two density functions, i.e. risk-neutral density and historical density. The RA indicators use the data from the Property Composite Index (PCI) and the Shanghai Stock Exchange Composite Index (SSECI). The empirical result shows that investors involved in the real estate security market have lower RA compared to those in the general security market. Particularly, RA indicators for both indices started to fall markedly in early 2008 and even more so after September 2008. The changes in RA suggest that the overall investors’ attitudes nowadays towards China's stock market are never as pessimistic as before.

Keywords: C00; C22; GARCH; Girsanov's theorem; change measure; risk appetite; securities

Document Type: Research Article

DOI: https://doi.org/10.1080/00036846.2012.681028

Affiliations: 1: Department of Building and Real Estate,The Hong Kong Polytechnic University, Hung Hom,Kowloon 852, Hong Kong 2: Department of Real Estate and Construction,The University of Hong Kong, Hong Kong

Publication date: 2013-07-01

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