Modelling Household's Savings and Dwellings Investment - a Portfolio Choice Approach
AbstractOne important characteristic of dwellings is that housing can be regarded as an investment or asset. Our paper focuses on this function of dwellings and develops a stochastic portfolio choice model for the housing market, which is easy to incorporate into medium and large-scale macro models. Theoretical results suggest that house prices move in line with households’ income, although house prices have a higher variance than income does. Another important implication of the model is that the portfolio share of housing investment depends on the excess return, defined as the difference between return on housing and financial investment and the variance of excess return describing the riskiness of an asset. Our intention is to test these theoretical implications of the model on several countries, however we only test on UK data, due to the data availability. In this case, empirical results strengthen the model framework.
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Bibliographic InfoPaper provided by Magyar Nemzeti Bank (the central bank of Hungary) in its series MNB Working Papers with number 2003/6.
Length: 36 pages
Date of creation: 2003
Date of revision:
households' behaviour; housing investment; saving; portfolio decision; house price.;
Other versions of this item:
- Gábor Vadas, 2004. "Modelling Households’ Savings and Dwellings Investment – A Portfolio Choice Approach," International Real Estate Review, Asian Real Estate Society, vol. 7(1), pages 31-55.
- Gabor Vadas, 2005. "Modelling Households' Savings and Dwellings Investment - A Portfolio Choice Approach," Macroeconomics 0507013, EconWPA.
- E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
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