Are Household Portfolios Efficient? An Analysis Conditional on Housing
EFA 2003 Annual Conference Paper No. 617
University Ca' Foscari of Venice, Dept. of Economics Research Paper Series No. 55/06
51 Pages Posted: 18 Jul 2003 Last revised: 2 May 2012
There are 2 versions of this paper
Are Household Portfolios Efficient? An Analysis Conditional on Housing
Are Household Portfolios Efficient? An Analysis Conditional on Housing
Date Written: May 15, 2003
Abstract
Standard tests of portfolio efficiency neglect the existence of illiquid wealth. The most important illiquid asset in household portfolios is housing: if housing stock adjustments are infrequent, optimal portfolios in periods of no adjustment are affected by housing price risk through a hedge term and tests for portfolio efficiency of financial assets must be run conditionally upon housing wealth. We use Italian household portfolio data and time series on financial assets and housing stock returns to assess whether actual portfolios are efficient. We find that housing wealth plays a key role in determining whether portfolios chosen by home-owners are efficient.
Keywords: Housing and portfolio choice, Portfolio efficiency
JEL Classification: D91, G11
Suggested Citation: Suggested Citation
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