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Are Household Portfolios Efficient? An Analysis Conditional on Housing

Author

Listed:
  • Loriana Pelizzon

    (pelizzon@unive.it
    Department of Economics, University Of Venice Ca� Foscari)

  • Guglielmo Weber

    (University of University of Padua, IFS and CEPR)

Abstract

Standard tests of portfolio efficiency neglect the existence of illiquid wealth. The most important illiquid asset in household portfolios is housing: if housing stock adjustments are infrequent, optimal portfolios in periods of no adjustment are affected by housing price risk through a hedge term and tests for portfolio efficiency of financial assets must be run conditionally upon housing wealth. We use Italian household portfolio data and time series on financial assets and housing stock returns to assess whether actual portfolios are efficient. We find that housing wealth plays a key role in determining whether portfolios chosen by home-owners are efficient.

Suggested Citation

  • Loriana Pelizzon & Guglielmo Weber, 2006. "Are Household Portfolios Efficient? An Analysis Conditional on Housing," Working Papers 2006_55, Department of Economics, University of Venice "Ca' Foscari".
    • Handle: RePEc:ven:wpaper:2006_55
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    More about this item

    Keywords

    Housing and portfolio choice; Portfolio efficiency.;

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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