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Efficient portfolios when housing needs change over the life cycle

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  • Pelizzon, Loriana
  • Weber, Guglielmo

Abstract

We address the issue of the efficiency of household portfolios in the presence of housing risk. We treat housing stock as an asset and rents as a stochastic liability stream: over the life cycle, households can be short or long in their net-housing position. Efficient financial portfolios are the sum of a standard Markowitz portfolio and a housing risk hedge term that multiplies net housing wealth. Our empirical results show that net housing plays a key role in determining which household portfolios are inefficient. The largest proportion of inefficient portfolios obtains among those with positive net housing, who should invest more in stocks.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 33 (2009)
Issue (Month): 11 (November)
Pages: 2110-2121

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Handle: RePEc:eee:jbfina:v:33:y:2009:i:11:p:2110-2121

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Keywords: Housing and portfolio choice Portfolio efficiency Rental risk Life cycle;

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