An Intertemporal Capital Asset Pricing Model with Owner‐Occupied Housing

Yongqiang Chu

Real Estate Economics, 2010, vol. 38, issue 3, 427-465

Abstract: This article studies portfolio choice and asset pricing in the presence of owner‐occupied housing in a continuous time framework. The unique feature of the model is that housing is a consumption good as well as a risky asset. Under general conditions, that is, when the utility function is not Cobb–Douglas and the covariance matrix is not block‐diagonal, the model shows that the market portfolio is not mean‐variance efficient, and the traditional capital asset pricing model fails. Nonetheless, a conditional linear factor pricing model holds with housing return and market portfolio return as two risk factors. The model also predicts that the nondurable consumption‐to‐housing ratio (ch) can forecast financial asset returns. The two factor pricing model conditioning on ch yields a good cross‐sectional fit for Fama–French 25 portfolios.

Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
https://doi.org/10.1111/j.1540-6229.2010.00272.x

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:reesec:v:38:y:2010:i:3:p:427-465

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=1080-8620

Access Statistics for this article

Real Estate Economics is currently edited by Crocker Liu, N. Edward Coulson and Walter Torous

More articles in Real Estate Economics from American Real Estate and Urban Economics Association Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().