A Model of Housing in the Presence of Adjustment Costs: A Structural Interpretation of Habit Persistence

Flavin, Marjorie; Nakagawa, Setsuko

doi:10.3386/w10458

Cited by 97 publications

(118 citation statements)

References 42 publications

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“…In their model, both nondurable consumption and housing enter the utility function in a nonseparable way, and house price is explicitly stochastic and follows geometric Brownian motion. Flavin and Nakagawa (2008) also conclude that the market portfolio is mean‐variance efficient and traditional CAPM holds. They assume that the covariance matrix of the asset returns (including housing return) is block‐diagonal.…”

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confidence: 69%

“…Moreover, their model has nothing to say about the characteristics of the market portfolio due to the nature of the representative agent framework. The current model, however, also aims at characterizing the market portfolio and comparing the results with Grossman and Laroque (1990) and Flavin and Nakagawa (2008). Although some pricing results of this article are similar to the results in Piazzesi, Schneider and Tuzel (2006), some differences are worth noting here.…”

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confidence: 85%

“…The empirical cross‐sectional tests confirm that these correlations are important at lease cross‐sectionally. This change made in the assumption reverses some of the results in Flavin and Nakagawa (2008). And unlike Flavin and Nakagawa (2008), this article focuses on the cross‐sectional implication of owner‐occupied housing on asset pricing.…”

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confidence: 97%

“…In a more recent article, Flavin and Nakagawa (2008) relax the above two assumptions and focus on the effect of adjustment costs on the equity premium. In their model, both nondurable consumption and housing enter the utility function in a nonseparable way, and house price is explicitly stochastic and follows geometric Brownian motion.…”

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confidence: 99%

“…However, because they focus on explaining the aggregate property of the stock market, this block‐diagonal assumption is a legitimate assumption given the evidence that housing has very low correlation with market portfolio return. This article, like Flavin and Nakagawa (2008), models both housing and nondurable consumption, and I allow house price to follow a diffusion process. I, however, remove the block‐diagonal covariance matrix assumption mainly because this article focuses on explaining cross‐sectional variations of asset returns.…”

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confidence: 99%

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An Intertemporal Capital Asset Pricing Model with Owner-Occupied Housing

Chu

2010

Real Estate Economics

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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. Copyright (c) 2010 American Real Estate and Urban Economics Association.

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confidence: 69%

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confidence: 85%

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confidence: 97%

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confidence: 99%

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confidence: 99%

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An Intertemporal Capital Asset Pricing Model with Owner-Occupied Housing

Chu

2010

Real Estate Economics

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Does the US health care safety net discourage private insurance coverage?

Qin

Liu

2012

Eur J Health Econ

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The large and growing uninsured population poses an alarming threat to the US health care system, and is a major target of the Obama health reform. This paper investigates analytically and empirically the degree to which the absence of health insurance in the US reflects the availability of the health care safety net, such as the guaranteed or charitable care provided by emergency rooms, community health centers and physicians. Our theoretical model demonstrates that the safety net can be a real alternative to health insurance, thus discouraging private insurance purchase in the market setting. In particular, when the community premium rate fails to reflect the value of such resources, not purchasing insurance becomes a rational decision for a sizeable portion of the population. The calibrated simulation based on US statistics indicates about 15.75% of the uninsured population, or 7.2 million people in US, are attributable to the existing safety net system. Further empirical analysis using nationally representative data shows consistently that the presence of local safety net resources may reduce the probability of individual insurance purchase by as much as 45.9%.

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Housing Wealth and Household Portfolios in an Ageing Society

Rouwendal

2009

De Economist

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SummaryHousing is one of the most important consumption goods, also for the elderly. For owner-occupiers, housing equity is moreover usually the most important asset in their investment portfolio, and hence, household wealth of the elderly is extremely sensitive to developments on the housing market. This panel paper surveys the literature on housing as a consumption good and asset category over the life cycle and moreover presents stylised facts on the housing market behavior of Dutch households over their life cycle. Although many of the issues discussed also occur in other countries, the Dutch housing market is used as a background o the review.

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A Model of Housing in the Presence of Adjustment Costs: A Structural Interpretation of Habit Persistence

Cited by 97 publications

References 42 publications

An Intertemporal Capital Asset Pricing Model with Owner-Occupied Housing

An Intertemporal Capital Asset Pricing Model with Owner-Occupied Housing

Does the US health care safety net discourage private insurance coverage?

Housing Wealth and Household Portfolios in an Ageing Society

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