Advanced Search
MyIDEAS: Login

The Portfolio Implications of Home Ownership

Contents:

Author Info

  • de Roon, Frans
  • Eichholtz, Piet
  • Koedijk, Kees
Registered author(s):

    Abstract

    This Paper analyses the effects of residential property holdings on optimal investment portfolios. Using a mean-variance framework, we show that residential real estate offers significant diversification benefits relative to investments in stocks and bonds for US investors. Risk averse investors that hold residential real estate for investment purposes have future wealth that is less volatile. For most geographical areas in the US, investors have the best diversification benefits from residential real estate when about 30% of their investment portfolio is residential real estate. In addition to this diversification effect, we find that stocks and bonds do not provide a good hedge for positions in real estate, implying that the relative demand for either is not significantly affected by home ownership. For less risk averse agents the price return on real estate is too low in order to justify inclusion in the investment portfolio. This implies that if agents invest a significant fraction of their wealth in their house, the non-price increase, i.e., the consumption benefits, should be significant. Our estimates suggest that the order of magnitude of these non-price increases is about 10% per year.

    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.cepr.org/pubs/dps/DP3501.asp
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Bibliographic Info

    Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3501.

    as in new window
    Length:
    Date of creation: Aug 2002
    Date of revision:
    Handle: RePEc:cpr:ceprdp:3501

    Contact details of provider:
    Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ
    Phone: 44 - 20 - 7183 8801
    Fax: 44 - 20 - 7183 8820

    Order Information:
    Email:

    Related research

    Keywords: home ownership; portfolio choice; real estate;

    Find related papers by JEL classification:

    This paper has been announced in the following NEP Reports:

    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. Case, Karl E. & Quigley, John M. & Shiller, Robert J., 2012. "Comparing Wealth Effects: The Stock Market versus The Housing Market," Department of Economics, Working Paper Series qt6px1d1sc, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    2. Frans A. de Roon, 2001. "Testing for Mean-Variance Spanning with Short Sales Constraints and Transaction Costs: The Case of Emerging Markets," Journal of Finance, American Finance Association, vol. 56(2), pages 721-742, 04.
    3. Goetzmann, W.N., 1990. "The Single Family Home In The Investment Portfolio," Papers fb-_90-15, Columbia - Graduate School of Business.
    4. Case, Karl E & Shiller, Robert J, 1989. "The Efficiency of the Market for Single-Family Homes," American Economic Review, American Economic Association, vol. 79(1), pages 125-37, March.
    5. Jorion, Philippe, 1991. "Bayesian and CAPM estimators of the means: Implications for portfolio selection," Journal of Banking & Finance, Elsevier, vol. 15(3), pages 717-727, June.
    6. Anderson, Ronald W & Danthine, Jean-Pierre, 1981. "Cross Hedging," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1182-96, December.
    7. 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.
    8. Nijman, T.E. & Roon, F.A. de & Werker, B.J.M., 2001. "Testing for Mean-Variance spanning with short sales constraints and transaction costs: The case of emerging markets," Open Access publications from Tilburg University urn:nbn:nl:ui:12-86724, Tilburg University.
    9. William N. Goetzmann & Roger G. Ibbotson, 1990. "The Performance Of Real Estate As An Asset Class," Journal of Applied Corporate Finance, Morgan Stanley, vol. 3(1), pages 65-76.
    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. Carolina Fugazza & Massimo Guidolin & Giovanna Nicodano, 2007. "Investing for the Long-run in European Real Estate," The Journal of Real Estate Finance and Economics, Springer, vol. 34(1), pages 35-80, January.
    2. Loriana Pelizzon & Guglielmo Weber, 2007. "Efficient Portfolios when Housing Needs Change over the Life-Cycle," Working Papers 2007_31, Department of Economics, University of Venice "Ca' Foscari".
    3. Pelizzon, Loriana & Weber, Guglielmo, 2003. "Are Household Portfolios Efficient? An Analysis Conditional on Housing," CEPR Discussion Papers 3890, C.E.P.R. Discussion Papers.

    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:cpr:ceprdp:3501. 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: ().

    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.