TY  - JOUR
AU  - Flavin,Marjorie
AU  - Yamashita,Takashi
TI  - Owner-Occupied Housing and the Composition of the Household Portfolio Over the Life-Cycle
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6389
PY  - 1998
Y2  - January 1998
UR  - http://www.nber.org/papers/w6389
L1  - http://www.nber.org/papers/w6389.pdf
N1  - Author contact info:
Marjorie Flavin
Department of Economics, 0508
9500 Gilman Drive
University of California, San Diego
La Jolla, CA 92093-0508
Tel: 619/534-4649
Fax: 619/534-7040
E-Mail: mflavin@ucsd.edu

Takashi Yamashita
H. Wayne Huizenga School of Business and Entrepren
Nova Southeastern University
3301 College Avenue
Fort Lauderdale, FL 33314-7796
Tel: (954) 262-5142
Fax: (954) 262-3974
E-Mail: takashi.yamashita@huizenga.nova.edu
AB  - This paper studies the impact of the portfolio constraint imposed by the consumption demand for housing (the 'housing constraint') on the household's optimal holdings of financial assets. Since the ratio of housing to net worth declines as the household accumulates wealth, the housing constraint induces a life-cycle pattern in the portfolio shares of stocks and bonds.  For reasonable degrees of risk aversion, the changes in portfolio composition over the life-cycle can be dramatic.  For example, for a coefficient of relative risk aversion of 3, the ratio of stocks to net worth in the optimal portfolio is .09 for the youngest households (ages 18-30) and .60 for the oldest (age 70 and over). Using data from the PSID on home values to construct household level panel data on the real after-tax return to owner-occupied housing, as well as data on the returns to financial assets, the paper estimates the vector of expected returns and the covariance matrix for the set of assets consisting of housing, mortgages, stocks, Treasury bonds, and T-bills. Numerical methods are used to calculate the mean-variance efficient frontier, conditional on different values of the housing constraint, and the optimal portfolios associated with different levels of relative risk aversion.
ER  -