Tuesday, April 25, 2006

Housing Futures

Housing futures are being introduced on the Chicago Mercantile Exchange. Wonder when we'll have them in India. Real estate, particularly housing, constitutes the largest chunk of any individual's asset; but is unfortunately the least liquid of all major asset classes. The market is also highly inefficient and fraught with purchase/sale difficulties. The asset class has so far been regarded as an alternative investment, with the result that few, if any, investment firms provide services to financial investors in it. Housing futures are a welcome step in changing this environment.

However, as I've begun to notice, financial knowledge about derivatives is low in the general populace - infact, even the most literate are only aware of the speculative aspect of derivatives. The concept of risk management is only slowly catching on. So, even if introduced in India, futures on housing/real estate classes will be the domain of only the most sophisticated of investors. The day when the average investor understands and invests in these instruments will be an exciting day.

Source: FinanceProfessor
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