Optimal portfolio choice with predictability in house prices and transaction costs

Stefano Corradin (), Jose Fillat and Carles Vergara-Alert

No QAU10-2, Supervisory Research and Analysis Working Papers from Federal Reserve Bank of Boston

Abstract: We study a model of portfolio choice, in which housing prices are predictable and adjustment costs must be paid when there is a housing transaction. We show that two state variables affect the agent's decisions: (i) his wealth-house ratio; and (ii) the time-varying expected growth rate of housing prices. The agent buys (sells) his housing assets only when the wealth-house ratio reaches an optimal upper (lower) boundary. These boundaries are time-varying and depend on the expected growth rate of housing prices. Finally, we use household level data from the PSID and SIPP surveys to test and support the main implications of the model, as well as portfolio rules and holdings of housing asset.

Keywords: Housing; -; Prices (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-ure
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Related works:
Journal Article: Optimal Portfolio Choice with Predictability in House Prices and Transaction Costs (2014)
Working Paper: Optimal portfolio choice with predictability in house prices and transaction costs (2012)
Working Paper: Optimal portfolio choice with predictability in house prices and transaction costs (2012)
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