Portfolio Choice in the Presence of Personal Illiquid Projects

Miquel Faig and Pauline Shum

Journal of Finance, 2002, vol. 57, issue 1, 303-328

Abstract: Personal projects, such as a private business or the purchase of a home, influence individuals portfolio choice. We conduct a theoretical analysis of this influence when financial assets are required to provide liquidity to personal projects. Due to this liquidity consideration, individuals behave in a more riskaverse fashion when there is a large penalty for discontinuing or underinvesting in the final stages of the projects. In addition, using data from the 1995 Survey of Consumer Finances, we find that households that are saving to invest in their own businesses or in their own homes indeed have significantly safer financial portfolios.

Date: 2002
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Citations: View citations in EconPapers (38)

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https://doi.org/10.1111/1540-6261.00423

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Working Paper: Portfolio Choice in the Presence of Personal Illiquid Projects (2000)
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Persistent link: https://EconPapers.repec.org/RePEc:bla:jfinan:v:57:y:2002:i:1:p:303-328

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