Portfolio Choice In The Presence Of Housing
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| Author | : o F. Cocco |
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| Total Pages | : |
| Release | : 2010 |
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I show that investment in housing plays a crucial role in explaining the patterns of cross-sectional variation in the composition of wealth and the level of stockholdings observed in portfolio composition data. Due to investment in housing, younger and poorer investors have limited financial wealth to invest in stocks, which reduces the benefits of equity market participation. House price risk crowds out stockholdings, and this crowding out effect is larger for low financial net-worth. In the model as in the data leverage is positively correlated with stockholdings.
| Author | : Joao F. Cocco |
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| Total Pages | : 47 |
| Release | : 2008 |
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I show that investment in housing plays a crucial role in explaining the patterns of cross sectional variation in the composition of wealth and the level of stockholdings observed in portfolio composition data. Due to investment in housing, younger and poorer investors have limited financial wealth to invest in stocks, which reduces the benefits of equity market participation. House price risk crowds out stockholdings, but this crowding out effect is larger for low financial net-worth. Transaction costs of changing houses reduce the frequency of house trades and also lead investors to reduce their exposure to stocks. In the model as in the data leverage is positively correlated with stockholdings.
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| Release | : 2004 |
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| Author | : Robert F. Sarama |
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| Total Pages | : 111 |
| Release | : 2010 |
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The second essay, "Non-durable Consumption Volatility and Illiquid Assets," finds that factors beyond the volatility of asset payoffs may significantly affect the volatility of the agent's consumption stream. The empirical failure of consumption-based asset pricing models is often attributed to the lack of volatility in aggregate measures of consumption. However, I illustrate in this paper that frictions faced by agents may lead to much higher levels of volatility in individual consumption than we observe in the aggregate data. I develop a life-cycle model of in which the consumer derives utility from non-durable consumption and stock in a risky asset: housing. Non-convex adjustment costs generate lumpy changes in the stock of the risky asset over the life-cycle. The model predicts that non-durable consumption volatility is increasing in both the ability to borrow against the assets held in the consumer's portfolio and in the illiquidity of the portfolio.
| Author | : Patrick Coggi |
| Publisher | : Sudwestdeutscher Verlag Fur Hochschulschriften AG |
| Total Pages | : 132 |
| Release | : 2009 |
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| ISBN | : 9783838112787 |
The aim of this book is to study portfolio and consumption decisions in the presence of durable goods, in particular housing. Part I provides a review of advances in portfolio theory. Dealing with durability raises complex mathematical issues discussed in the appendix. Part II focuses on a particularity of durable goods that has been studied very little, namely the decision to buy versus renting. We provide an original model of tenure choice and study its impact on households' optimal financial decisions. To achieve this we merge real options and portfolio theory and are able to obtain fairly explicit solutions, even with incomplete markets. In fact, it is the presence of market incompleteness, that is, the imperfect hedgeability by trading in financial assets of idiosyncratic risks linked to real estate that leads to our main finding: Risk aversion and market incompleteness reduce the relative attractiveness of homeownership relative to renting. We find that homeownership becomes more affordable and more likely as market incompleteness decreases and risks can be hedged better, while higher market incompleteness and risk aversion tend to depress house prices.
| Author | : Rune Mølgaard |
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| Total Pages | : 73 |
| Release | : 2015 |
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This paper studies in continuous time and in an incomplete market setting the optimal housing, consumption, labor and portfolio choice of an agent in the presence of stochastic house prices and wages. Thus, the house prices and wage rates cannot be spanned by the financial market. In particular, the paper investigates the optimal strategies under two different preference specifications with respect to housing. The paper provides new closed-form solutions in the special case in which the market is complete. In addition, the paper also studies the optimal housing, consumption, labor, portfolio and welfare implications of frictions in the housing market. Particularly, the optimal strategies and welfare loss are analyzed if the house is a non-traded asset. This paper suggests that the consumption, labor, speculative investment and hedging of human capital is similar across preference specification and frictions in the market for housing when the economy is complete. The consumption and labor strategies are, however, dependent on frictions in the market for housing in the case where the economy is incomplete. The welfare loss from these frictions is small in magnitude but will influence the optimal consumption, labor and portfolio choice.
| Author | : Cengiz Tunc |
| Publisher | : |
| Total Pages | : 107 |
| Release | : 2012 |
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| Author | : Thiti Karoonyanont |
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| Total Pages | : 310 |
| Release | : 2008 |
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| Author | : Stefano Corradin |
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| Total Pages | : 36 |
| Release | : 2009 |
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We study a model of portfolio choice with housing in which house price is predictable. Housing is illiquid in that a transaction cost must be paid when the house is sold. We show that two state variables aff ect the agent's decisions: (i) the wealth-houseratio, and (ii) the time-varying mean rate of house price growth. The agent increases (decreases) his housing asset holding only when the wealth-house ratio reaches an optimal upper (lower) boundary. These boundaries are time-varying and will decrease (increase) when house prices are expected to rise (fall). Implications for portfolio rules and housing asset holding are examined. Finally, we use PSID data to test the implications of our model.
| Author | : Sanford J. Grossman |
| Publisher | : |
| Total Pages | : 76 |
| Release | : 1987 |
| Genre | : Assets (Accounting) |
| ISBN | : |
We analyze a model of optimal consumption and portfolio selection in which consumption services are generated by holding a durable good. The durable good is illiquid in that a transaction cost must be paid when the good is sold. It is shown that optimal consumption is not a smooth function of wealth; it is optimal for the consumer to wait until a large change in wealth occurs before adjusting his consumption. As a consequence, the consumption based capital asset pricing model fails to hold. Nevertheless, it is shown that the standard, one factor, market portfolio based capital asset pricing model does hold in this environment. It is shown that the optimal durable level is characterized by three numbers (not random variables), say x, y, and z (where x
