Betting on Homes

In this paper, we analyze the differences in annualized capital gains across heterogeneous investor groups in the US housing market, namely owner-occupiers, private investors, as well as short- and long-term institutional investors. Our empirical results link the performance differences to heterogeneity in risk-taking. In particular, investor-specific exposure to lagged local return dispersion explains persistent performance differences of investors within a given market. Short-term institutional investors outperform others by exploiting the upside potential of local return dispersion. By contrast, neither macroeconomic fundamentals nor local factors, such as momentum, liquidity, and downside risk, can explain the observed performance disparities.