IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Portfolio Choice with Indivisible and Illiquid Housing Assets: The Case of Spain

  • Sergio Mayordomo

    ()

    (School of Economics and Business Administration, University of Navarra)

  • María Rodríguez-Moreno

    ()

    (European Central Bank)

  • Juan Ignacio Peña

    ()

    (Department of Business Administration, Universidad Carlos III de Madrid)

This paper presents a procedure for computing the theoretically optimal portfolio under the assumption that housing is an indivisible, illiquid asset that restricts the portfolio choice decision. The analysis also includes the financial constraints households may face when they apply for external funding. The set of financial assets that constitute the household’s portfolios are bank time deposits, stocks, mortgage, and housing. We compare the theoretically optimal portfolio against Spanish households’ actual choices using a unique data set, the Spanish Survey of Household Finance. In comparison with the optimal portfolio, households significantly underinvest in stocks and deposits. In the case of mortgages, the optimal and actual portfolios weights are not unequal. At a more disaggregated level, some additional differences emerge that are explained by demographic, educational, and income characteristics.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.unav.es/facultad/econom/files/workingpapersmodule/@random50169a3d22927/1356049966_WP_UNAV_24_12.pdf
Download Restriction: no

Paper provided by School of Economics and Business Administration, University of Navarra in its series Faculty Working Papers with number 24/12.

as
in new window

Length: 52 pages
Date of creation: 21 Dec 2012
Date of revision:
Handle: RePEc:una:unccee:wp2412
Contact details of provider: Web page: http://www.unav.es/facultad/econom

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Laurent E. Calvet & John Y. Campbell & Paolo Sodini, 2006. "Down or Out: Assessing the Welfare Costs of Household Investment Mistakes," Harvard Institute of Economic Research Working Papers 2107, Harvard - Institute of Economic Research.
  2. John Y. Campbell, 2002. "Consumption-Based Asset Pricing," Harvard Institute of Economic Research Working Papers 1974, Harvard - Institute of Economic Research.
  3. Guiso, Luigi & Jappelli, Tullio, 2000. "Household Portfolios in Italy," CEPR Discussion Papers 2549, C.E.P.R. Discussion Papers.
  4. Jofre-Bonet, Mireia & Pesendorfer, Martin, 2000. "Bidding behavior in a repeated procurement auction: A summary," European Economic Review, Elsevier, vol. 44(4-6), pages 1006-1020, May.
  5. Irina Barakova & Raphael Bostic & Paul Calem & Susan Wachter, 2003. "Does Credit Quality Matter for Homeownership?," Working Paper 8608, USC Lusk Center for Real Estate.
  6. Longstaff, Francis A, 2001. "Optimal Portfolio Choice and the Valuation of Illiquid Securities," Review of Financial Studies, Society for Financial Studies, vol. 14(2), pages 407-31.
  7. Haliassos, Michael & Bertaut, Carol C, 1995. "Why Do So Few Hold Stocks?," Economic Journal, Royal Economic Society, vol. 105(432), pages 1110-29, September.
  8. 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.
  9. Carol Bertaut & Martha Starr-McCluer, 2000. "Household portfolios in the United States," Finance and Economics Discussion Series 2000-26, Board of Governors of the Federal Reserve System (U.S.).
  10. 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.
  11. Antonia Diaz & Maria J. Luengo-Prado, 2006. "On The User Cost And Homeownership," Economics Working Papers we065421, Universidad Carlos III, Departamento de Economía.
  12. John Y. Campbell, 2006. "Household Finance," Journal of Finance, American Finance Association, vol. 61(4), pages 1553-1604, 08.
  13. Paul M Anglin & Yanmin Gao, 2011. "Integrating Illiquid Assets into the Portfolio Decision Process," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 39(2), pages 277-311, 06.
  14. King, Mervyn A. & Leape, Jonathan I., 1998. "Wealth and portfolio composition: Theory and evidence," Journal of Public Economics, Elsevier, vol. 69(2), pages 155-193, June.
  15. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, 03.
  16. 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.
  17. Eduardo S. Schwartz & Claudio Tebaldi, 2006. "Illiquid Assets and Optimal Portfolio Choice," NBER Working Papers 12633, National Bureau of Economic Research, Inc.
  18. Peter Linneman & Susan Wachter, 1989. "The Impacts of Borrowing Constraints on Homeownership," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 17(4), pages 389-402.
  19. Jarl G. Kallberg & Crocker H. Liu & D. Wylie Greig, 1996. "The Role of Real Estate in the Portfolio Allocation Process," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 24(3), pages 359-377.
  20. Asiedu, Elizabeth & Villamil, Anne P., 2000. "Discount Factors And Thresholds: Foreign Investment When Enforcement Is Imperfect," Macroeconomic Dynamics, Cambridge University Press, vol. 4(01), pages 1-21, March.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:una:unccee:wp2412. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.