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Owner-Occupied Housing and Demand for Risky Financial Assets: Some Finnish Evidence

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  • Tuukka Saarimaa

    ()
    (Department of Economics and Business Administration, University of Joensuu, Finland)

Abstract

This paper studies the linkage between owner-occupied housing and portfolio choice. Using a theoretical simulation model with Finnish asset return data we find that a leveraged position in housing has a clear negative effect on the share of stocks in a mean-variance efficient portfolio. The second part of the paper studies how owner-occupied housing actually affects households’ financial portfolios using Finnish household data. The main result indicates that the more valuable house a homeowner resides in, at a given level of net wealth, the less likely it is to own stocks. However, it seems that housing has only a small effect if any on the share of financial assets a household invests in stocks conditional on stockholding.

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Bibliographic Info

Article provided by Finnish Economic Association in its journal Finnish Economic Papers.

Volume (Year): 21 (2008)
Issue (Month): 1 (Spring)
Pages: 22-38

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Handle: RePEc:fep:journl:v:21:y:2008:i:1:p:22-38

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Web page: http://www.taloustieteellinenyhdistys.fi
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  1. Yamashita, Takashi, 2003. "Owner-occupied housing and investment in stocks: an empirical test," Journal of Urban Economics, Elsevier, vol. 53(2), pages 220-237, March.
  2. Englund, Peter & Hwang, Min & Quigley, John M, 2002. "Hedging Housing Risk," The Journal of Real Estate Finance and Economics, Springer, vol. 24(1-2), pages 167-200, Jan.-Marc.
  3. Luigi Guiso & Tullio Jappelli, 2002. "Stockholding in Italy," CSEF Working Papers 82, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  4. Harrison Hong & Jeffrey D. Kubik & Jeremy C. Stein, 2004. "Social Interaction and Stock-Market Participation," Journal of Finance, American Finance Association, vol. 59(1), pages 137-163, 02.
  5. Annette Vissing-Jorgensen, 2002. "Towards an Explanation of Household Portfolio Choice Heterogeneity: Nonfinancial Income and Participation Cost Structures," NBER Working Papers 8884, National Bureau of Economic Research, Inc.
  6. Marjorie Flavin & Takashi Yamashita, 2002. "Owner-Occupied Housing and the Composition of the Household Portfolio," American Economic Review, American Economic Association, vol. 92(1), pages 345-362, March.
  7. Todd Sinai & Nicholas S. Souleles, 2003. "Owner-Occupied Housing as a Hedge Against Rent Risk," NBER Working Papers 9462, National Bureau of Economic Research, Inc.
  8. Rivers, Douglas & Vuong, Quang H., 1988. "Limited information estimators and exogeneity tests for simultaneous probit models," Journal of Econometrics, Elsevier, vol. 39(3), pages 347-366, November.
  9. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
  10. Katherine A. Kiel & Jeffrey E. Zabel, 1999. "The Accuracy of Owner-Provided House Values: The 1978-1991 American Housing Survey," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 27(2), pages 263-298.
  11. Brueckner, Jan K, 1997. "Consumption and Investment Motives and the Portfolio Choices of Homeowners," The Journal of Real Estate Finance and Economics, Springer, vol. 15(2), pages 159-80, October.
  12. Jeff Dominitz & Charles F. Manski, 2007. "Expected Equity Returns and Portfolio Choice: Evidence from the Health and Retirement Study," Journal of the European Economic Association, MIT Press, vol. 5(2-3), pages 369-379, 04-05.
  13. Oikarinen, Elias, 2006. "Price Linkages between Stock, Bond and Housing Markets - Evidence from Finnish Data," Discussion Papers 1004, The Research Institute of the Finnish Economy.
  14. Henderson, J Vernon & Ioannides, Yannis M, 1983. "A Model of Housing Tenure Choice," American Economic Review, American Economic Association, vol. 73(1), pages 98-113, March.
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Cited by:
  1. Yunker, James A. & Melkumian, Alla A., 2010. "The effect of capital wealth on optimal diversification: Evidence from the Survey of Consumer Finances," The Quarterly Review of Economics and Finance, Elsevier, vol. 50(1), pages 90-98, February.
  2. Arrondel, L. & Savignac, F., 2009. "Stockholding: Does housing wealth matter?," Working papers 266, Banque de France.

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