The Predominance of Real Estate in the Household Portfolio

42 Pages Posted: 7 May 2016 Last revised: 4 Jun 2017

See all articles by Laurent Barras

Laurent Barras

McGill University - Desautels Faculty of Management

Sebastien Betermier

McGill University - Desautels Faculty of Management

Date Written: August 9, 2016

Abstract

This paper investigates why household portfolios are heavily skewed toward real estate. Previous studies suggest that the large portfolio share of real estate primarily stems from non-investment-related motives as homeowners are often forced to invest heavily to buy the home they want to consume. In contrast, we show that homeowners would still invest the bulk of their wealth in real estate in a frictionless setting where they could own and consume separate amounts of housing. We provide empirical support to this argument and derive a dynamic portfolio model to study why real estate has such a strong investment appeal.

Keywords: G11, G12

JEL Classification: Portfolio allocation, hedging, real estate

Suggested Citation

Barras, Laurent and Betermier, Sebastien, The Predominance of Real Estate in the Household Portfolio (August 9, 2016). Paris December 2017 Finance Meeting EUROFIDAI - AFFI. Available at SSRN: https://ssrn.com/abstract=2776350 or http://dx.doi.org/10.2139/ssrn.2776350

Laurent Barras

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1
Canada
+15143988862 (Phone)

Sebastien Betermier (Contact Author)

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1
Canada

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