Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
10479760 | Journal of Urban Economics | 2005 | 23 Pages |
Abstract
In this paper, I show that introducing frictions associated with housing into standard life-cycle models can partially resolve the portfolio choice puzzle. I calibrate a model in which a representative household endogenously transits from renting to mortgage-financed homeownership. The household can later adjust housing status either voluntarily or because of a forced move, by paying transaction costs. It is shown that homeownership crowds out stock market participation: risky owner-occupied housing substitutes for stocks while bonds provide liquidity. Young and middle-aged households, regardless of whether they are currently homeowners, hold much less stock than predicted by traditional models without housing.
Keywords
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Xiaoqing Hu,