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

Author

Listed:
  • 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)

Abstract

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 household's 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.

Suggested Citation

  • Sergio Mayordomo & María Rodríguez-Moreno & Juan Ignacio Peña, 2012. "Portfolio Choice with Indivisible and Illiquid Housing Assets: The Case of Spain," Faculty Working Papers 24/12, School of Economics and Business Administration, University of Navarra.
  • Handle: RePEc:una:unccee:wp2412
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    References listed on IDEAS

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    Cited by:

    1. repec:fau:fauart:v:67:y:2017:i:5:p:439-459 is not listed on IDEAS
    2. Callado Muñoz, Francisco Jose & González Chapela, Jorge & Utrero González, Natalia, 2014. "Analysis of deviance in household financial portfolio choice: evidence from Spain," MPRA Paper 57497, University Library of Munich, Germany.

    More about this item

    Keywords

    Portfolio choice; Households; Indivisible illiquid assets; Financial constraints; Under-investment;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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