Bureau of Economic Analysis
1441 L St. N.W.
Washington, DC 20230
Tel: (202) 606-2207
Fax: (202) 606-5366
NBER Working Papers and Publications
|January 1998||Owner-Occupied Housing and the Composition of the Household Portfolio Over the Life-Cycle|
with Marjorie Flavin: w6389
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...
Published: Flavin, Majorie and Takashi Yamashita. "Owner-Occupied Housing And The Composition Of The Household Portfolio," American Economic Review, 2002, v92(1,Mar), 345-362.