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Are Household Portfolios Efficient? An Analysis Conditional on Housing

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Author Info
Loriana Pelizzon (pelizzon@unive.it, Department of Economics, University Of Venice Ca’ Foscari)
Guglielmo Weber (University of University of Padua, IFS and CEPR)

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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.

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Publisher Info
Paper provided by University of Venice "Ca' Foscari", Department of Economics in its series Working Papers with number 2006_55.

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Length: 50
Date of creation: 2006
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Handle: RePEc:ven:wpaper:2006_55

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Related research
Keywords: Housing and portfolio choice; Portfolio efficiency.;

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Find related papers by JEL classification:
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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.:

  1. Jorion, Philippe, 1985. "International Portfolio Diversification with Estimation Risk," Journal of Business, University of Chicago Press, vol. 58(3), pages 259-78, July. [Downloadable!] (restricted)
  2. Luigi Guiso & Tullio Jappelli, 2000. "Household Portfolios in Italy," CSEF Working Papers 43, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy. [Downloadable!]
    Other versions:
  3. de Roon, Frans & Eichholtz, Piet & Koedijk, Kees, 2002. "The Portfolio Implications of Home Ownership," CEPR Discussion Papers 3501, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  4. Gourieroux, C. & Jouneau, F., 1999. "Econometrics of efficient fitted portfolios," Journal of Empirical Finance, Elsevier, vol. 6(1), pages 87-118, January. [Downloadable!] (restricted)
  5. Michael Phelan, 1995. "Probability and Statistics Applied to the Practice of Financial Risk Management: The Case of JP Morgan's RiskMetrics™," Center for Financial Institutions Working Papers 95-19, Wharton School Center for Financial Institutions, University of Pennsylvania. [Downloadable!]
  6. Marjorie Flavin & Shinobu Nakagawa, 2004. "A Model of Housing in the Presence of Adjustment Costs: A Structural Interpretation of Habit Persistence," NBER Working Papers 10458, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Grossman, Sanford J & Laroque, Guy, 1990. "Asset Pricing and Optimal Portfolio Choice in the Presence of Illiquid Durable Consumption Goods," Econometrica, Econometric Society, vol. 58(1), pages 25-51, January. [Downloadable!] (restricted)
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  8. Ross, Stephen A & Zisler, Randall C, 1991. "Risk and Return in Real Estate," The Journal of Real Estate Finance and Economics, Springer, vol. 4(2), pages 175-90, June.
  9. Anderson, Ronald W & Danthine, Jean-Pierre, 1981. "Cross Hedging," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1182-96, December. [Downloadable!] (restricted)
  10. 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. [Downloadable!] (restricted)
  11. Rui Yao, 2005. "Optimal Consumption and Portfolio Choices with Risky Housing and Borrowing Constraints," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 18(1), pages 197-239. [Downloadable!] (restricted)
  12. Joao F. Cocco, 2005. "Portfolio Choice in the Presence of Housing," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 18(2), pages 535-567. [Downloadable!] (restricted)
  13. Goetzmann, William Nelson, 1993. "The Single Family Home in the Investment Portfolio," The Journal of Real Estate Finance and Economics, Springer, vol. 6(3), pages 201-22, May.
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  14. John Heaton & Deborah Lucas, 2000. "Portfolio Choice and Asset Prices: The Importance of Entrepreneurial Risk," Journal of Finance, American Finance Association, vol. 55(3), pages 1163-1198, 06. [Downloadable!] (restricted)
  15. 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. [Downloadable!] (restricted)
  16. 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. [Downloadable!] (restricted)
  17. Mayers, David, 1973. "Nonmarketable Assets and the Determination of Capital Asset Prices in the Absence of a Riskless Asset," Journal of Business, University of Chicago Press, vol. 46(2), pages 258-67, April. [Downloadable!] (restricted)
  18. Jobson, J. D. & Korkie, Bob, 1982. "Potential performance and tests of portfolio efficiency," Journal of Financial Economics, Elsevier, vol. 10(4), pages 433-466, December. [Downloadable!] (restricted)
  19. Loriana Pelizzon & Guglielmo Weber, 2006. "Are Household Portfolios Efficient? An Analysis Conditional on Housing," "Marco Fanno" Working Papers 0021, Dipartimento di Scienze Economiche "Marco Fanno". [Downloadable!]
    Other versions:
Full references

Cited by:
(explanations, 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.)

  1. Raffaele Miniaci & Sergio Pastorello, 2008. "Mean-Variance Econometric Analysis of Household Portfolios," Working Papers 0807, University of Brescia, Department of Economics. [Downloadable!]
  2. Carolina Fugazza & Massimo Guidolin & Giovanna Nicodano, 2006. "Investing for the long-run in European real estate," Working Papers 2006-028, Federal Reserve Bank of St. Louis. [Downloadable!]
    Other versions:
  3. Jan Rouwendal, 2009. "Housing Wealth and Household Portfolios in an Ageing Society," De Economist, Springer, vol. 157(1), pages 1-48, March. [Downloadable!] (restricted)
  4. Loriana Pelizzon & Guglielmo Weber, 2006. "Are Household Portfolios Efficient? An Analysis Conditional on Housing," Working Papers 2006_55, University of Venice "Ca' Foscari", Department of Economics. [Downloadable!]
    Other versions:
  5. Giorgio Bellettini & Filippo Taddei, 2009. "Real Estate Prices and the Importance of Bequest Taxation," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  6. Alessandro Bucciol & Raffaele Miniaci, 2006. "Optimal asset allocation based on utility maximization in the presence of market frictions," "Marco Fanno" Working Papers 0012, Dipartimento di Scienze Economiche "Marco Fanno". [Downloadable!]
    Other versions:
  7. Paiella, Monica & Pozzolo, Alberto Franco, 2007. "Choosing Between Fixed and Adjustable Rate Mortgages," Economics & Statistics Discussion Papers esdp07033, University of Molise, Dept. SEGeS. [Downloadable!]
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