Housing and its Role in the Household Portfolio in Colombia

29 Pages Posted: 12 Jan 2010

See all articles by Camilo Serrano

Camilo Serrano

IAZI AG - CIFI SA

Martin Hoesli

University of Geneva - Geneva School of Economics and Management (GSEM); Swiss Finance Institute; University of Aberdeen - Business School

Date Written: December 21, 2009

Abstract

We examine the optimal allocation of assets in the portfolio of a Colombian homeowner conditional on various levels of the house value to net wealth ratio. The high rate of home ownership and low rates of investment in financial assets indicate that households allocate most of their wealth to housing. Our results suggest that actual allocations are suboptimal and that significant gains can be obtained with a higher degree of diversification. In particular, we find that housing plays a positive role in efficient portfolio allocation when the housing to net wealth ratio is less than 1.5, but when the house value is higher than what the household can afford, it inevitably increases the risk for the household. The housing policy implications is that the results could help define the maximum mortgage that may be granted to a given household and determine which households qualify for housing acquisition or rental subsidies.

Keywords: Housing, Home Ownership, Household Portfolio, Modern Portfolio Theory, Efficient Frontiers, Colombia

JEL Classification: R20, R21, G11, R11

Suggested Citation

Serrano, Camilo and Hoesli, Martin Edward Ralph, Housing and its Role in the Household Portfolio in Colombia (December 21, 2009). Swiss Finance Institute Research Paper No. 10-01, Available at SSRN: https://ssrn.com/abstract=1534657 or http://dx.doi.org/10.2139/ssrn.1534657

Camilo Serrano (Contact Author)

IAZI AG - CIFI SA ( email )

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Martin Edward Ralph Hoesli

University of Geneva - Geneva School of Economics and Management (GSEM) ( email )

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Switzerland
+41 22 379 8122 (Phone)
+41 22 379 8104 (Fax)

Swiss Finance Institute

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University of Aberdeen - Business School ( email )

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United Kingdom
+41 22 379 8122 (Phone)
+41 22 379 8104 (Fax)

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