Portfolio Choice in the Presence of Personal Illiquid Projects

Posted: 22 Nov 2003 Last revised: 22 Jul 2010

See all articles by Miquel Faig

Miquel Faig

University of Toronto Mississauga

Pauline Shum Nolan

York University - Schulich School of Business

Abstract

Personal projects, such as a private business or the purchase of a home, influence individuals' portfolio choice. We conduct a theoretical analysis of this influence when financial assets are required to provide liquidity to personal projects. Due to this liquidity consideration, individuals behave in a more risk-averse fashion when there is a large penalty for discontinuing or underinvesting in the final stages of the projects. In addition, using data from the 1995 Survey of Consumer Finances, we find that households that are saving to invest in their own businesses or in their own homes indeed have significantly safer financial portfolios.

Suggested Citation

Faig, Miquel and Shum Nolan, Pauline, Portfolio Choice in the Presence of Personal Illiquid Projects. Journal of Finance, Vol. 57, pp. 303-328, 2002, Available at SSRN: https://ssrn.com/abstract=309162

Miquel Faig (Contact Author)

University of Toronto Mississauga ( email )

3359 Mississauga Rd N.
3205 William Davis Building
Mississauga, Ontario L5L 1C6
Canada
9058285499 (Phone)

Pauline Shum Nolan

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

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