A Mean-Variance Benchmark for Household Portfolios over the Life Cycle

43 Pages Posted: 24 May 2016 Last revised: 6 Feb 2020

See all articles by Claus Munk

Claus Munk

Copenhagen Business School

Date Written: February 5, 2020


We embed human capital as an innate, illiquid asset in Markowitz' one-period mean-variance framework. By solving the Markowitz problem for different values of the ratio of human capital to financial wealth, we emulate life-cycle effects in household portfolio decisions. The portfolio derived with this simple approach matches the optimal portfolio from the much more complicated dynamic life-cycle models. An application illustrates that young households may optimally refrain from stock investments because a house investment combined with a mortgage is more attractive from a pure investment perspective. Another application examines the theoretical support for the observed growth/value tilts in households' portfolios.

Keywords: Life-cycle portfolio decisions, human capital, housing, stock market participation, growth/value tilts

JEL Classification: G11, D15

Suggested Citation

Munk, Claus, A Mean-Variance Benchmark for Household Portfolios over the Life Cycle (February 5, 2020). Available at SSRN: https://ssrn.com/abstract=2783276 or http://dx.doi.org/10.2139/ssrn.2783276

Claus Munk (Contact Author)

Copenhagen Business School ( email )

Department of Finance
Solbjerg Plads 3
Frederiksberg, DK-2000

HOME PAGE: http://sites.google.com/view/clausmunk/home

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