Are Household Portfolios Efficient? An Analysis Conditional on Housing

51 Pages Posted: 18 Jul 2003 Last revised: 2 May 2012

See all articles by Guglielmo Weber

Guglielmo Weber

University of Padua - Department of Economics; Centre for Economic Policy Research (CEPR); Institute for Fiscal Studies (IFS)

Loriana Pelizzon

Goethe University Frankfurt - Faculty of Economics and Business Administration; Leibniz Institute for Financial Research SAFE; Ca Foscari University of Venice - Dipartimento di Economia

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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

Weber, Guglielmo and Pelizzon, Loriana, Are Household Portfolios Efficient? An Analysis Conditional on Housing (May 15, 2003). EFA 2003 Annual Conference Paper No. 617, University Ca' Foscari of Venice, Dept. of Economics Research Paper Series No. 55/06, Available at SSRN: https://ssrn.com/abstract=423961 or http://dx.doi.org/10.2139/ssrn.423961

Guglielmo Weber (Contact Author)

University of Padua - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR)

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Institute for Fiscal Studies (IFS) ( email )

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Loriana Pelizzon

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

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Frankfurt am Main, D-60323
Germany

Leibniz Institute for Financial Research SAFE ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

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Ca Foscari University of Venice - Dipartimento di Economia ( email )

Cannaregio 873
Venice, 30121
Italy

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