Dr. TSANG Chun Kei, ThomasThomasDr. TSANG Chun KeiProf. WONG Wing-keungHorowitz, IraIraHorowitz2024-03-192024-03-192016Studies in Economics and Finance, 2016, vol. 33(4), pp. 735-754.1086-7376http://hdl.handle.net/20.500.11861/9101Purpose This paper aims to investigate how a prospective buyer’s optimal home-size purchase can be determined by means of a stochastic-dominance (SD) analysis of the historical data of Hong Kong. Design/methodology/approach By means of SD analysis, the paper uses monthly property yields in Hong Kong over a 15-year period to illustrate how buyers of different risk preference may optimize their home-size purchase. Findings Regardless of whether the buyer eschews risk, embraces risk or is indifferent to it, in any adjacent pairing of five well-defined housing classes, the smaller class provides the optimal purchase. In addition, risk-averters focusing on total yield would prefer to invest in the smallest and second-smallest classes than in the largest class. Research limitations/implications As the smaller class provides the optimal purchase, the smallest class affords the buyer the optimal purchase over all classes in this important housing market – at least where rental yields are of primary concern. Practical implications The findings suggest that in the Hong Kong housing market, long-term investors may be better off purchasing smaller homes. For other type of investors, it depends on their risk preference. Originality/value There is a very small body of empirical literature on housing investment, especially if the focus is on the optimal home-size purchase.enPeer Reviewed Journal Article10.1108/SEF-03-2015-0079