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Homeownership, Committed Expenditure Risk, and the Stockholding Puzzle

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  • Fratantoni, Michael C

Abstract

Kimball (1991) showed that consumers who face an unavoidable risk will display "temperance", meaning that they will increase their holdings of safe assets. In principle, temperance could provide an explanation for the stockholding puzzle, which is the microeconomic manifestation of the equity premium puzzle. Previous work has shown that the temperance effect induced by labor income uncertainty is too small to explain the stockholding puzzle. This paper finds that committed expenditure risk associated with homeownership induces enough additional temperance to explain the puzzle. Copyright 2001 by Oxford University Press.

Suggested Citation

  • Fratantoni, Michael C, 2001. "Homeownership, Committed Expenditure Risk, and the Stockholding Puzzle," Oxford Economic Papers, Oxford University Press, vol. 53(2), pages 241-259, April.
  • Handle: RePEc:oup:oxecpp:v:53:y:2001:i:2:p:241-59
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    Cited by:

    1. repec:cuf:journl:y:2017:v:18:i:1:zhaoli is not listed on IDEAS
    2. Cardak, Buly A. & Wilkins, Roger, 2009. "The determinants of household risky asset holdings: Australian evidence on background risk and other factors," Journal of Banking & Finance, Elsevier, vol. 33(5), pages 850-860, May.
    3. Luc Arrondel & Frédérique Savignac, 2015. "Risk management, housing and stockholding," Applied Economics, Taylor & Francis Journals, vol. 47(39), pages 4208-4227, August.
    4. Sebastian Barnes & Gregory Thwaites, 2005. "'Real-world' mortgages, consumption volatility and the low inflation environment," Bank of England working papers 273, Bank of England.
    5. Yulei Rao & Lixing Mei & Rui Zhu, 2016. "Happiness and Stock-Market Participation: Empirical Evidence from China," Journal of Happiness Studies, Springer, vol. 17(1), pages 271-293, February.
    6. John Y. Campbell & João F. Cocco, 2003. "Household Risk Management and Optimal Mortgage Choice," The Quarterly Journal of Economics, Oxford University Press, vol. 118(4), pages 1449-1494.
    7. Gene Amromin, 2008. "Precautionary Savings Motives and Tax Efficiency of Household Portfolios: An Empirical Analysis," NBER Chapters,in: Tax Policy and the Economy, Volume 22, pages 5-41 National Bureau of Economic Research, Inc.
    8. Brown, Sarah & Gray, Daniel & Harris, Mark N. & Spencer, Christopher, 2016. "Portfolio Allocation, Income Uncertainty and Households' Flight from Risk," IZA Discussion Papers 10408, Institute for the Study of Labor (IZA).
    9. 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.
    10. repec:cuf:journl:y:2017:v:18:i:2:zhao:li is not listed on IDEAS
    11. John Y. Campbell, 2006. "Household Finance," Journal of Finance, American Finance Association, vol. 61(4), pages 1553-1604, August.
    12. Francesco Mariotti & Karen Mumford & Yolanda Pena-Boquete, 2015. "Household Asset-Holding Diversification in Australia," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 48(1), pages 43-64, March.
    13. Yannis Bilias & Michael Haliassos, 2004. "The Distribution of Gains from Access to Stocks," CSEF Working Papers 125, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    14. Yulei Rao & Lixing Mei & Rui Zhu, 2016. "Happiness and Stock-Market Participation: Empirical Evidence from China," Journal of Happiness Studies, Springer, vol. 17(1), pages 271-293, February.
    15. Dietz, Robert D. & Haurin, Donald R., 2003. "The social and private micro-level consequences of homeownership," Journal of Urban Economics, Elsevier, vol. 54(3), pages 401-450, November.
    16. Raj Chetty & Adam Szeidl, 2007. "Consumption Commitments and Risk Preferences," The Quarterly Journal of Economics, Oxford University Press, vol. 122(2), pages 831-877.
    17. repec:dau:papers:123456789/8576 is not listed on IDEAS
    18. Goswami, Gautam & Tan, Sinan & Waisman, Maya, 2014. "Understanding the cross-section of the U.S. housing bubble: The roles of lending, transaction costs, and rent growth," Journal of Financial Stability, Elsevier, vol. 15(C), pages 76-90.
    19. Viola Angelini & Peter Simmons, "undated". "Housing Debt and Consumption," Discussion Papers 11/20, Department of Economics, University of York.
    20. Zhou, Jie, 2012. "Life-cycle stock market participation in taxable and tax-deferred accounts," Journal of Economic Dynamics and Control, Elsevier, vol. 36(11), pages 1814-1829.
    21. Galina Vereshchagina, 2014. "Preferences for Risk in Dynamic Models with Adjustment Costs," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(1), pages 86-106, January.
    22. Morris A. Davis & Robert F. Martin, 2005. "Housing, house prices, and the equity premium puzzle," Finance and Economics Discussion Series 2005-13, Board of Governors of the Federal Reserve System (U.S.).
    23. Adam Szeidl & Raj Chetty, 2005. "Consumption Commitments: Neoclassical Foundations for Habit Formation," 2005 Meeting Papers 122, Society for Economic Dynamics.

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