Are Household Portfolios Efficient? An Analysis Conditional on Housing

Loriana Pelizzon () and Guglielmo Weber ()

No 2006_55, Working Papers from University of Venice "Ca' Foscari", Department of Economics

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. (search for similar items in EconPapers)
JEL-codes: D91 G11 (search for similar items in EconPapers)
Date: 2006
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Related works:
Working Paper: Are Household Portfolios Efficient? An Analysis Conditional on Housing (2006)
Working Paper: Are Household Portfolios Efficient? An Analysis Conditional on Housing (2003)
Journal Article: Are Household Portfolios Efficient? an Analysis Conditional on Housing (2008)
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