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Assessing the Interaction between Real Estate and Equity in Households Portfolio Choice

Author

Listed:
  • Kevin Elie Beaubrun-Diant

    () (LEDa - Laboratoire d'Economie de Dauphine - Université Paris-Dauphine)

  • Tristan-Pierre Maury

    () (Research Center on Economics - École des hautes études commerciales du Nord (EDHEC))

Abstract

In this paper, we provide a new empirical analysis of the dynamic portfolio decisions of households by simultaneously considering their stock market participation and home tenure choices. There is already a huge body of literature on housing status (own/rent) decisions and many contributions doc- umented the low stock market participation rate of US households. Although some papers evidenced that the home status (modeled as an exogenous variable) has an impact on the stock proportion in portfolio, our paper is the rst one to allow both decisions (home and stock) to be simultaneous and endogenous. We estimate a dynamic bivariate logistic panel data model on Panel Study of income Dynamics data from 1999 to 2007 controlling for sample selection bias and time-invariant unobserved heterogeneity. We rst evidence that our original joint setup outperforms a standard one (with two distinct equations for stock holdings and for home tenure), i.e. marginal odds ratios are signi cant. Using these estimates, we are able to simulate individual paths of stock and home equity positions over the life cycle according to households attributes. Ceteris Paribus, we show that households taking positions in one asset (home or stock) encounter a positive position in the other asset at an earlier stage in their life cycle, i.e. some households appear to be locked in a no-stock-and-renter position.

Suggested Citation

  • Kevin Elie Beaubrun-Diant & Tristan-Pierre Maury, 2011. "Assessing the Interaction between Real Estate and Equity in Households Portfolio Choice," Working Papers halshs-00635582, HAL.
    • Handle: RePEc:hal:wpaper:halshs-00635582
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00635582
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    References listed on IDEAS

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    1. Heckman, James & Singer, Burton, 1984. "A Method for Minimizing the Impact of Distributional Assumptions in Econometric Models for Duration Data," Econometrica, Econometric Society, vol. 52(2), pages 271-320, March.
    2. 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.
    3. 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.
    4. Joao F. Cocco, 2005. "Portfolio Choice in the Presence of Housing," Review of Financial Studies, Society for Financial Studies, vol. 18(2), pages 535-567.
    5. Francisco Gomes & Alexander Michaelides, 2005. "Optimal Life‐Cycle Asset Allocation: Understanding the Empirical Evidence," Journal of Finance, American Finance Association, vol. 60(2), pages 869-904, April.
    6. Ekaterini Kyriazidou, 1997. "Estimation of a Panel Data Sample Selection Model," Econometrica, Econometric Society, vol. 65(6), pages 1335-1364, November.
    7. Bartolucci, Francesco, 2007. "A penalized version of the empirical likelihood ratio for the population mean," Statistics & Probability Letters, Elsevier, vol. 77(1), pages 104-110, January.
    8. Bartolucci, Francesco & Farcomeni, Alessio, 2009. "A Multivariate Extension of the Dynamic Logit Model for Longitudinal Data Based on a Latent Markov Heterogeneity Structure," Journal of the American Statistical Association, American Statistical Association, vol. 104(486), pages 816-831.
    9. Joao F. Cocco, 2005. "Consumption and Portfolio Choice over the Life Cycle," Review of Financial Studies, Society for Financial Studies, vol. 18(2), pages 491-533.
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    Keywords

    Housing; Stock market participation; Portfolio choices; Panel Data;

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