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| Risk & Reward: New Products |
Macro Machinations
John Ferry
08/01/2005
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Holterman is keen to see such products develop.
Private investors can now use Real Estate Investment Trusts to take exposure to
regional real estate markets, but managing those regional exposures is
difficult. “I’d love to see the real estate products on HedgeStreet take off so
that people could actually hedge their home value,” he says.
While Arrow’s,
Merton’s and Shiller’s dream of a future in which most of the risks in an
individual’s life are hedgeable is drawing closer to reality, the adoption and
widespread use of economic hedging products is clearly still some way off. The
technology is now available, but it is not yet clear whether individuals will
embrace the idea of hedging real estate price risk or the risk of a
deterioration in the trade balance. Holterman is optimistic. “I think Shiller is
basically right,” he maintains, “and I think the level of sophistication,
especially among the affluent, will continue to increase.”
From Your Side of the Table
Five essential questions to ask
about macroeconomic hedging tools:
1. Which economic variables (for example GDP or nonfarm payroll) should I bet
on?
2. What types of structured investments provide the best exposure to the
Goldman Sachs/Deutsche Bank economic derivatives market? To the HedgeStreet
market?
3. How can I determine the current market consensus about specific
economic variables?
4. Would online trading of macroeconomic hedging tools
with HedgeStreet complement my overall portfolio strategy?
5. How can I
better understand the long-term potential of economic hedging tools?
John Ferry is an Edinburgh, U.K.-based journalist who specializes in writing
about financial markets and investments. mjohn.ferry@blueyonder.co.uk Additional Information
 Flying
Economy
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