Owner-Occupied Housing: Life-Cycle Implications for the Household Portfolio
Flavin, Marjorie, and
Takashi Yamashita. 2011. "Owner-Occupied Housing: Life-Cycle Implications for the Household Portfolio."
American Economic Review,
The paper constructs a model of optimal portfolio allocation incorporating the role of housing as collateral. Current house value is a state variable in the portfolio decision due to a nonconvex adjustment cost. Holding risk aversion constant, the percentage of the portfolio held in stocks is decreasing in the ratio of house value to net wealth; thus an older household with a lower ratio of house value to net wealth will generally hold more its portfolio in stocks than younger households. Empirical results using the Survey of Consumer Finances confirm the quantitative and statistical significance of the housing state variable.
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Flavin, Marjorie (U CA, San Diego)
Yamashita, Takashi (Nova Southeastern U)
D14: Personal Finance
D91: Intertemporal Consumer Choice; Life Cycle Models and Saving
G11: Portfolio Choice; Investment Decisions
R31: Housing Supply and Markets