Advanced Search
MyIDEAS: Login to save this paper or follow this series

Stockholding: Does housing wealth matter?

Contents:

Author Info

  • Arrondel, L.
  • Savignac, F.

Abstract

The existence of an equity premium puzzle has been largely emphasized in the empirical literature: one observes low risky assets holding that the standard portfolio choice model (with expected and discounting utility and homothetic preferences) is not able to explain. Besides modifications of rationality assumptions, other changes have been introduced in the standard framework to account for this equity premium puzzle: the existence of transaction costs, liquidity constraints or other risks (e.g. risks associated with employment, income, health,). These background risks (i.e. risks that are unavoidable, exogenous and independent from the financial market risk) may lead households to reduce their stockownership in order to limit their global exposure to risk. Recent developments examine the role of housing on stockholding as another background risk. This paper analyses the empirical link between stockholding and housing wealth within this framework. We use the French wealth survey (Enquête Patrimoine 2004, Insee) that gives us detailed information on households portfolio, socio-demographic variables, and several measures of preference and exposition to various risks (income, unemployment, health, and business). We find that an increase in the housing to net wealth ratio crowds out stock market investment for a given total financial wealth: when facing real estate exposure to risk, households tend to moderate their global exposure to risk by limiting the share of their financial wealth invested in stocks. Among the other significant determinants of the equity premium puzzle, we emphasize the role of transaction and information costs, the attitude toward risk and the exposition to various risks in hampering investments in stocks.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.banque-france.fr/uploads/tx_bdfdocumentstravail/DT266.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Banque de France in its series Working papers with number 266.

as in new window
Length: 45 pages
Date of creation: 2009
Date of revision:
Handle: RePEc:bfr:banfra:266

Contact details of provider:
Postal: Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS
Web page: http://www.banque-france.fr/
More information through EDIRC

Related research

Keywords: Portfolio choice ; background risks ; housing demand ; life-cycle model.;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Arrondel, Luc & Calvo Pardo, Hector, 2009. "Les Français sont-ils prudents ? Patrimoine et risque sur le marché du travail," Economics Papers from University Paris Dauphine 123456789/5057, Paris Dauphine University.
  2. Pelizzon, Loriana & Weber, Guglielmo, 2003. "Are Household Portfolios Efficient? An Analysis Conditional on Housing," CEPR Discussion Papers 3890, C.E.P.R. Discussion Papers.
  3. Miles S. Kimball, 1991. "Standard Risk Aversion," NBER Technical Working Papers 0099, National Bureau of Economic Research, Inc.
  4. Guiso, Luigi & Jappelli, Tullio & Terlizzese, Daniele, 1992. "Earnings uncertainty and precautionary saving," Journal of Monetary Economics, Elsevier, vol. 30(2), pages 307-337, November.
  5. Arrondel, L. & Lefebvre, B., 2000. "Consumption and Investment Motives in Housing Wealth Accumulation : a French Study," DELTA Working Papers 2000-14, DELTA (Ecole normale supérieure).
  6. Bodie, Zvi & Merton, Robert C. & Samuelson, William F., 1992. "Labor supply flexibility and portfolio choice in a life cycle model," Journal of Economic Dynamics and Control, Elsevier, vol. 16(3-4), pages 427-449.
  7. Douglas W. Elmendorf & Miles S. Kimball, 1996. "Taxation of labor income and the demand for risky assets," Finance and Economics Discussion Series 96-32, Board of Governors of the Federal Reserve System (U.S.).
  8. 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.
  9. Miquel Faig & Pauline Shum, 2006. "What Explains Household Stock Holdings?," Working Papers tecipa-218, University of Toronto, Department of Economics.
  10. Pratt, John W & Zeckhauser, Richard J, 1987. "Proper Risk Aversion," Econometrica, Econometric Society, vol. 55(1), pages 143-54, January.
  11. James J. Heckman, 1976. "The Common Structure of Statistical Models of Truncation, Sample Selection and Limited Dependent Variables and a Simple Estimator for Such Models," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 5, number 4, pages 475-492 National Bureau of Economic Research, Inc.
  12. Campbell, John Y. & Viceira, Luis M., 2002. "Strategic Asset Allocation: Portfolio Choice for Long-Term Investors," OUP Catalogue, Oxford University Press, number 9780198296942.
  13. Arrondel, L., 2000. "Risk Management and Wealth Accumulation Behavior in France," DELTA Working Papers 2000-18, DELTA (Ecole normale supérieure).
  14. Charles F. Manski, 2004. "Measuring Expectations," Econometrica, Econometric Society, vol. 72(5), pages 1329-1376, 09.
  15. Avner Bar-Ilan & Alan S. Blinder, 1987. "Consumer Durables and the Optimality of Usually Doing Nothing," NBER Working Papers 2488, National Bureau of Economic Research, Inc.
  16. Luis M. Viceira, 1999. "Optimal Portfolio Choice for Long-Horizon Investors with Nontradable Labor Income," NBER Working Papers 7409, National Bureau of Economic Research, Inc.
  17. EECKHOUDT, Louis & Christian GOLLIER & Harris SCHLESINGER, 1994. "Changes in Background Risk and Risk Taking Behavior," Working Papers 005, Risk and Insurance Archive.
  18. Fratantoni, Michael C, 2001. "Homeownership, Committed Expenditure Risk, and the Stockholding Puzzle," Oxford Economic Papers, Oxford University Press, vol. 53(2), pages 241-59, April.
  19. King, Mervyn A. & Leape, Jonathan I., 1998. "Wealth and portfolio composition: Theory and evidence," Journal of Public Economics, Elsevier, vol. 69(2), pages 155-193, June.
  20. Samuelson, Paul A, 1969. "Lifetime Portfolio Selection by Dynamic Stochastic Programming," The Review of Economics and Statistics, MIT Press, vol. 51(3), pages 239-46, August.
  21. David le Blanc & Christine Lagarenne, 2004. "Owner-Occupied Housing and the Composition of the Household Portfolio: The Case of France," The Journal of Real Estate Finance and Economics, Springer, vol. 29(3), pages 259-275, November.
  22. Tuukka Saarimaa, 2008. "Owner-Occupied Housing and Demand for Risky Financial Assets: Some Finnish Evidence," Finnish Economic Papers, Finnish Economic Association, vol. 21(1), pages 22-38, Spring.
  23. Luc Arrondel & André Masson, 2002. "Stockholding in France," DELTA Working Papers 2002-09, DELTA (Ecole normale supérieure).
  24. Luc Arrondel & Hector Calvo Pardo & Xisco Oliver, 2010. "Temperance in Stock Market Participation: Evidence from France," Economica, London School of Economics and Political Science, vol. 77(306), pages 314-333, 04.
  25. Guiso, Luigi & Jappelli, Tullio & Terlizzese, Daniele, 1994. "Income Risk, Borrowing Constraints and Portfolio Choice," CEPR Discussion Papers 888, C.E.P.R. Discussion Papers.
  26. 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.
  27. Lusardi, Annamaria, 1997. "Precautionary saving and subjective earnings variance," Economics Letters, Elsevier, vol. 57(3), pages 319-326, December.
  28. Eeckhoudt, Louis & Gollier, Christian, 2001. "Are Independent Optimal Risks Substitutes?," IDEI Working Papers 128, Institut d'Économie Industrielle (IDEI), Toulouse.
  29. Rui Yao, 2005. "Optimal Consumption and Portfolio Choices with Risky Housing and Borrowing Constraints," Review of Financial Studies, Society for Financial Studies, vol. 18(1), pages 197-239.
  30. Miles S. Kimball, 1989. "Precautionary Saving in the Small and in the Large," NBER Working Papers 2848, National Bureau of Economic Research, Inc.
  31. Henderson, J. Vernon & Ioannides, Yannis M., 1987. "Owner occupancy: Investment vs consumption demand," Journal of Urban Economics, Elsevier, vol. 21(2), pages 228-241, March.
  32. 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.
  33. Merton, Robert C, 1969. "Lifetime Portfolio Selection under Uncertainty: The Continuous-Time Case," The Review of Economics and Statistics, MIT Press, vol. 51(3), pages 247-57, August.
  34. Kapteyn, A. & Teppa, F., 2002. "Subjective Measures of Risk Aversion and Portfolio Choice," Discussion Paper 2002-11, Tilburg University, Center for Economic Research.
  35. Michael Haliassos, 2002. "Stockholding: Recent Lessons from Theory and Computations," University of Cyprus Working Papers in Economics 0206, University of Cyprus Department of Economics.
  36. Haliassos, Michael & Bertaut, Carol C, 1995. "Why Do So Few Hold Stocks?," Economic Journal, Royal Economic Society, vol. 105(432), pages 1110-29, September.
  37. Heaton, John & Lucas, Deborah, 2000. "Portfolio Choice in the Presence of Background Risk," Economic Journal, Royal Economic Society, vol. 110(460), pages 1-26, January.
  38. Barsky, Robert B, et al, 1997. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Study," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 537-79, May.
  39. 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.
  40. Dominitz, Jeff, 2001. "Estimation of income expectations models using expectations and realization data," Journal of Econometrics, Elsevier, vol. 102(2), pages 165-195, June.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. de Bandt,O. & Malik, S., 2010. "Is there Evidence of Shift-Contagion in International Housing Markets?," Working papers 295, Banque de France.
  2. Arrondel, Luc & Masson, André, 2011. "L'épargnant dans un monde en crise — Ce qui a changé," Opuscules du CEPREMAP, CEPREMAP, number 23, May.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:bfr:banfra:266. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marie-Christine Petit-Djemad).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.