Portfolio Choice in the Presence of Housing

47 Pages Posted: 1 Feb 2001

See all articles by Joao F. Cocco

Joao F. Cocco

London Business School; Centre for Economic Policy Research (CEPR)

Date Written: December 2000


I show that investment in housing plays a crucial role in explaining the patterns of cross sectional variation in the composition of wealth and the level of stockholdings observed in portfolio composition data. Due to investment in housing, younger and poorer investors have limited financial wealth to invest in stocks, which reduces the benefits of equity market participation. House price risk crowds out stockholdings, but this crowding out effect is larger for low financial net-worth. Transaction costs of changing houses reduce the frequency of house trades and also lead investors to reduce their exposure to stocks. In the model as in the data leverage is positively correlated with stockholdings.

Keywords: Portfolio choice, house price risk, transaction costs, stock market participation

JEL Classification: G11

Suggested Citation

Cocco, João F., Portfolio Choice in the Presence of Housing (December 2000). Available at SSRN: https://ssrn.com/abstract=258428 or http://dx.doi.org/10.2139/ssrn.258428

João F. Cocco (Contact Author)

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Centre for Economic Policy Research (CEPR)

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