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Efficient Portfolios when Housing Needs Change over the Life-Cycle

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  • Loriana Pelizzon

    ()
    (Department of Economics, University Of Venice Cà Foscari)

  • Guglielmo Weber

    (Department of Economics, University of Padua)

Abstract

We address the issue of the efficiency of household portfolios in the presence of housing risk. We treat housing stock as an asset and rents as a stochastic liability stream: over the life-cycle, households can be short or long in their net housing position. Efficient financial portfolios are the sum of a standard Markowitz portfolio and a housing risk hedge term that multiplies net housing wealth. Our empirical results show that net housing plays a key role in determining which household portfolios are inefficient. The largest proportion of inefficient portfolios obtains among those with positive net housing, who should invest more in stocks.

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Bibliographic Info

Paper provided by Department of Economics, University of Venice "Ca' Foscari" in its series Working Papers with number 2007_31.

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Length: 51
Date of creation: 2007
Date of revision:
Handle: RePEc:ven:wpaper:2007_31

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Keywords: Housing and portfolio choice; Portfolio efficiency; Rental risk; Life-cycle.;

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