What question did this study set out to answer?

To explore how investment in housing influences portfolio composition and stockholdings.

August 25, 2004

Portfolio Choice in the Presence of Housing

Key Points

To explore how investment in housing influences portfolio composition and stockholdings.
Analyzed patterns in cross-sectional data of wealth composition and stockholdings.
Developed a model linking housing investment to stock market participation.
Investigated the correlation between leverage and stockholdings.
Housing investment leads to lower stockholdings, especially among younger and poorer investors.
House price risk negatively impacts equity market participation, particularly for low financial net-worth individuals.
Higher leverage is positively correlated with increased stockholdings.

Abstract

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. Copyright 2005, Oxford University Press.

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Cite This Study

João F. Cocco (Wed,) studied this question.

synapsesocial.com/papers/69dd789026032fe00d101381 https://doi.org/https://doi.org/10.1093/rfs/hhi006

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