HousingDerivatives interviewed Michael Feder, President and CEO of Radar Logic. Radar Logic is launching US housing indices for structured products and derivatives trading:
Q: Trading volumes for the CME housing futures seem sluggish. What is your take on investor interest?
A: What we’ve seen is a migration in portfolio management to diversification of asset types and increased use of sophisticated techniques, including those based on derivatives, both to enhance returns and to manage risks. There is enormous interest in real estate, and many participants with different perceptions, uses and applications involving underlying values. We are confident that a robust marketplace will develop.
Q: How is Radar Logic different from Case-Shiller, OFHEO and NAR's median home price?
A: There are several differences. First, the Radar Logic index will be published daily; the other indices are monthly or quarterly. Secondly, although our index will draw on raw data similar to that used by the other indices, Radar Logic’s index methodology is more inclusive. For example, Case-Shiller and OFHEO are based on a repeat-sale methodology, which excludes certain sales such as new homes. Radar Logic’s index is also different from indices which use a median or average; our method is specifically designed to avoid the distortions that outliers can cause in simpler statistics. A methodology description is currently on our website, and we plan to post a more extensive technical paper on the site in the next two weeks.
Q: Do you think a fast moving index like Radar Logic is the right benchmark for housing trading?
A: Volatility does not scare us – our index is based on market movement, and those movements create trading opportunities. By successfully leveraging underlying patterns in the data, the index is robust enough to protect against statistical noise and market manipulation, but responsive enough to allow meaningful daily variability. We can also create weekly or longer moving averages of our indices on a custom basis, should users find those helpful.
Q: How does Radar Logic approach the basis risk issue with housing indices?
A: Basis risk is always a concern for holders of the underlying instrument, but Radar Logic's inclusion of all transactions ensures that the properties being hedged fall within the indices’ scope. Radar Logic will provide customized analytic tools for market players with specific hedging needs.
Q: Is Radar Logic interested in an exchange listing? If so, how many years forward would you foresee being listed?
A: Radar Logic expects to have exchange-listed instruments based on our index in the spring. Our goal is to develop instruments that satisfy customers’ needs.
Q: What kind of interest has Radar Logic received from financial dealers and developers?
A: The response has been overwhelmingly positive. We created the indices to be practical trading tools rather than just descriptive metrics, and the reaction has reinforced our belief that our indices will be valuable to a range of market participants.
Q: How will the public be able to access Radar Logic's data?
A: Radar Logic's historical index prices will be available for purchase through our website. We are also currently building web-based tools which will allow for highly sophisticated analyses.
Q: Where do you see Radar Logic in the next 2-3 years?
A: We are currently developing real estate indices based on commercial property, hotels and leisure, and are considering several international market options.
All opinions expressed herein are those of the author, and no statement should be as an offer to buy or sell any futures contract, or security or option or other derivative instrument. Trading of all such futures, securities, options and other derivative instruments entails significant risk which can result in substantial financial loss. Such risks should be fully understood prior to trading.
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