A mean-variance benchmark for household portfolios over the life cycle

Claus Munk

Journal of Banking & Finance, 2020, vol. 116, issue C

Abstract: We embed human capital as an innate, illiquid asset in Markowitz’ one-period mean-variance framework. By solving the Markowitz problem for different values of the ratio of human capital to financial wealth, we emulate life-cycle effects in household portfolio decisions. The portfolio derived with this simple approach matches the optimal portfolio from the much more complicated dynamic life-cycle models. An application illustrates that young households may optimally refrain from stock investments because a house investment combined with a mortgage is more attractive from a pure investment perspective. Another application examines the theoretical support for the observed growth/value tilts in households’ portfolios.

Keywords: Life-cycle portfolio decisions; Human capital; Housing; stock market participation; Growth/value tilts (search for similar items in EconPapers)
JEL-codes: D15 G11 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:116:y:2020:i:c:s037842662030100x

DOI: 10.1016/j.jbankfin.2020.105833

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