Consumption and Investment Motives and the Portfolio Choices of Homeowners

Consumption and Investment Motives and the Portfolio Choices of Homeowners This article investigates the portfolio choices of homeowners, taking into account the investment constraint introduced by Henderson and Ioannides (1983). This constraint requires housing investment by homeowners to be at least as large as housing consumption. It is shown that when the constraint is binding, the homeowner's optimal portfolio is ineffcient in a mean-variance sense. Thus, portfolio inefficiency is not an indication that consumers are irrational or careless in their financial decisions. Instead, inefficiency can be seen as the result of a rational balancing of the consumption benefits and portfolio distortion associated with housing investment. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Real Estate Finance and Economics Springer Journals

Consumption and Investment Motives and the Portfolio Choices of Homeowners

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Publisher
Springer Journals
Copyright
Copyright © 1997 by Kluwer Academic Publishers
Subject
Economics; Regional/Spatial Science; Financial Services
ISSN
0895-5638
eISSN
1573-045X
D.O.I.
10.1023/A:1007777532293
Publisher site
See Article on Publisher Site

Abstract

This article investigates the portfolio choices of homeowners, taking into account the investment constraint introduced by Henderson and Ioannides (1983). This constraint requires housing investment by homeowners to be at least as large as housing consumption. It is shown that when the constraint is binding, the homeowner's optimal portfolio is ineffcient in a mean-variance sense. Thus, portfolio inefficiency is not an indication that consumers are irrational or careless in their financial decisions. Instead, inefficiency can be seen as the result of a rational balancing of the consumption benefits and portfolio distortion associated with housing investment.

Journal

The Journal of Real Estate Finance and EconomicsSpringer Journals

Published: Sep 30, 2004

References

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