Portfolio Choice in the Presence of Housing

Is Household Wealth Sustainable? An Examination of Asset Poverty Reentry After an Exit

“…Changes in TVC Portfolio or TVC Debt_ratio might be related to changes in these other assets. Empirical evidence has suggested that households deal with the risk associated with housing investments by reducing the risk associated with their other investments-such as decreasing the portion invested in stocks (Cocco 2005;Flavin and Yamashita 2002). However, our main results were robust to the inclusion of time-varying home and automobile ownership indicating that at least for these types of assets, the correlation between the asset transaction and leveraging or portfolio allocation was not substantial enough to influence the results.…”

Portfolio choice in retirement: Health risk and the demand for annuities, housing, and risky assets

“…For example, several papers allow health expenditure to respond endogenously to health shocks, but they do not model housing or portfolio choice (Picone et al, 1998; Hugonnier et al, 2013). Several papers study housing and portfolio choice during the working phase when households face labor-income risk, instead of retirement when they face health risk (Cocco, 2005; Hu, 2005; Yao and Zhang, 2005). Finally, several papers study portfolio choice between bonds, stocks, and annuities (but not housing) in the context of a life-cycle model in which health expenditure and mortality are exogenous (Edwards, 2008; Horneff et al, 2009; Pang and Warshawsky, 2010; Inkmann et al, 2011; Koijen et al, 2016).…”

“…Therefore, housing returns are calibrated with R̄ h = 1.004 and σ h = 0.035 annually. The transaction cost is calibrated to τ = 0.08, following Cocco (2005).…”

How Family Status and Social Security Claiming Options Shape Optimal Life Cycle Portfolios

“…Research has sought to make those models more realistic by introducing new sources of risk (Campbell and Viceira 2001; Cocco, Gomes, and Maenhout 2005), important nonfinancial assets such as housing (Cocco 2005) or life annuities (Horneff, Maurer, and Stamos 2008; Inkmann, Lopez, and Michaelides 2011); and endogeneity of labor supply (Bodie, Merton, and Samuelson 1992; Gomes, Kotlikoff, and Viceira 2008) or the retirement age (Farhi and Panageas, 2007; Chai et al 2011). Nevertheless, most prior studies take the perspective of an individual representative agent, rather than examining the possibly differing perspectives of households of varying sizes and compositions.…”