Portfolio choice with indivisible and illiquid housing assets: the case of Spain

DOI10.1080/14697688.2013.843786MaRDI QIDQ5247288zbMATH OpenOpenAlexFDO

Authors Sergio Mayordomo, Maria Rodriguez-Moreno, Juan Ignacio Peña

Publication date 23 April 2015

Published in Quantitative Finance (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/2202.02280, http://www.unav.edu/documents/10174/6546776/1356049966_WP_UNAV_24_12.pdf

zbMATH Keywords

financial constraintshouseholdsindivisible illiquid assetsover-investmentportfolio choiceunder-investment

Mathematics Subject Classification ID

Applications of statistics to actuarial sciences and financial mathematics (62P05) Portfolio theory (91G10)

Abstract: This paper studies the investment decision of the Spanish households using a unique data set, the Spanish Survey of Household Finance (EFF). We propose a theoretical model in which households, given a fixed investment in housing, allocate their net wealth across bank time deposits, stocks, and mortgage. Besides considering housing as an indivisible and illiquid asset that restricts the portfolio choice decision, we take into account the financial constraints that households face when they apply for external funding. For every representative household in the EFF we solve this theoretical problem and obtain the theoretically optimal portfolio that is compared with households' actual choices. We find that households significantly underinvest in stocks and deposits while the optimal and actual mortgage investments are alike. Considering the three types of financial assets at once, we find that the households headed by highly financially sophisticated, older, retired, richer, and unconstrained persons are the ones investing more efficiently.

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Cites work

• Consumption and Portfolio Decisions when Expected Returns are Time Varying
• DISCOUNT FACTORS AND THRESHOLDS: FOREIGN INVESTMENT WHEN ENFORCEMENT IS IMPERFECT
• Optimal housing, consumption, and investment decisions over the life cycle
• Optimum consumption and portfolio rules in a continuous-time model
• The economics of risk and time

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