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Efficient Portfolios when Housing Needs Change over the Life-Cycle

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Listed author(s):
  • Loriana Pelizzon

    ()

    (University of Venice)

  • Guglielmo Weber

    ()

    (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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Paper provided by Dipartimento di Scienze Economiche "Marco Fanno" in its series "Marco Fanno" Working Papers with number 0037.

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Length: 60 pages
Date of creation: Feb 2007
Handle: RePEc:pad:wpaper:0037
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Keywords: Housing and portfolio choice; Portfolio efficiency; Rental risk; Life-cycle;

Other versions of this item:

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

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