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Endogenous Life-Cycle Housing Investment and Portfolio Allocation

Author

Listed:
  • Cengiz Tunc
  • Denis Pelletier

Abstract

This paper develops a life-cycle portfolio allocation model to address the effects of housing investment on the portfolio allocation of households. The model employs a comprehensive housing investment structure, Epstein-Zin recursive preferences and a stock market entry cost. Furthermore, rather than resorting to calibration we estimate the value of the relative risk aversion and elasticity of intertemporal substitution. The model shows that housing investment has a strong crowding out effect on investment in risky assets throughout the life-cycle and predicts that homeowners are, by and large, wealthier than renters and invest more in risky assets than renters.

Suggested Citation

  • Cengiz Tunc & Denis Pelletier, 2013. "Endogenous Life-Cycle Housing Investment and Portfolio Allocation," Working Papers 1345, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    • Handle: RePEc:tcb:wpaper:1345
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    File URL: https://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN/Main+Menu/Publications/Research/Working+Paperss/2013/13-45
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    Cited by:

    1. Qi-an Chen & Huashi Li & Jianyi Lin & Yunfeng Gao, 2025. "The Role of Housing Mortgage Leverage in Stock Asset Pricing: Evidence from the Chinese A-share Market," The Journal of Real Estate Finance and Economics, Springer, vol. 71(2), pages 209-253, August.
    2. Khorunzhina, Natalia, 2021. "Intratemporal nonseparability between housing and nondurable consumption: Evidence from reinvestment in housing stock," Journal of Monetary Economics, Elsevier, vol. 117(C), pages 658-670.
    3. Geoffrey Meen & Alexander Mihailov & Yehui Wang, 2016. "Endogenous UK Housing Cycles and the Risk Premium: Understanding the Next Housing Crisis," Economics Discussion Papers em-dp2016-02, Department of Economics, University of Reading.

    More about this item

    Keywords

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    JEL classification:

    • G0 - Financial Economics - - General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • D10 - Microeconomics - - Household Behavior - - - General

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