The Predominance of Real Estate in the Household Portfolio
42 Pages Posted: 7 May 2016 Last revised: 4 Jun 2017
Date Written: August 9, 2016
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: Suggested Citation