Document Type

Article

Publication Date

3-4-2025

Comments

This article is the author’s final published version in the Journal of Risk and Financial Management, Volume 18, Issue 3, March 2025, Article number 134.

The published version is available at https://doi.org/10.3390/jrfm18030134. Copyright © 2025 by the authors. Licensee MDPI, Basel, Switzerland.

Abstract

Homebuilder ETFs provide investors with a diversified portfolio of residential construction and sales companies which reduces risks associated with individual stock selection in the sector. This study examines the net monthly returns of homebuilder exchange-traded funds (ETFs) through various performance evaluation models and market situations. The results reveal that these ETFs outperformed benchmark indices in absolute returns. Despite homebuilding being part of the real estate sector, the correlation between monthly returns of homebuilder ETFs and the Dow Jones US Real Estate Index, though positive, is not very high. The performance of ETFs varied across market conditions, demonstrating both outperformance and underperformance compared to U.S. stocks. During the COVID-19 pandemic, homebuilder ETFs displayed a decline, trailing behind U.S. equities in both absolute returns and risk-adjusted performance. This result emphasizes their vulnerability during economic crises. Utilizing a modified version of the Carhart factor model, significant exposure of real estate ETFs to the stock market was observed. Moreover, an assessment of ETF portfolio managers’ skills indicated proficiency in security selection but limited capabilities in market timing. Homebuilder ETFs pose higher downside risks than other indices, evident in their elevated Value at Risk (VaR) and Conditional Value at Risk (CVaR) values.

Creative Commons License

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 License.

Language

English

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