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Asset Pricing And Portfolio Choice In The Presence Of Housing
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Book Synopsis Asset Pricing and Portfolio Choice in the Presence of Housing by : Robert F. Sarama
Download or read book Asset Pricing and Portfolio Choice in the Presence of Housing written by Robert F. Sarama and published by . This book was released on 2010 with total page 111 pages. Available in PDF, EPUB and Kindle. Book excerpt: The second essay, "Non-durable Consumption Volatility and Illiquid Assets," finds that factors beyond the volatility of asset payoffs may significantly affect the volatility of the agent's consumption stream. The empirical failure of consumption-based asset pricing models is often attributed to the lack of volatility in aggregate measures of consumption. However, I illustrate in this paper that frictions faced by agents may lead to much higher levels of volatility in individual consumption than we observe in the aggregate data. I develop a life-cycle model of in which the consumer derives utility from non-durable consumption and stock in a risky asset: housing. Non-convex adjustment costs generate lumpy changes in the stock of the risky asset over the life-cycle. The model predicts that non-durable consumption volatility is increasing in both the ability to borrow against the assets held in the consumer's portfolio and in the illiquidity of the portfolio.
Book Synopsis Portfolio Choice in the Presence of Housing by : o F. Cocco
Download or read book Portfolio Choice in the Presence of Housing written by o F. Cocco and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: I show that investment in housing plays a crucial role in explaining the patterns of cross-sectional variation in the composition of wealth and the level of stockholdings observed in portfolio composition data. Due to investment in housing, younger and poorer investors have limited financial wealth to invest in stocks, which reduces the benefits of equity market participation. House price risk crowds out stockholdings, and this crowding out effect is larger for low financial net-worth. In the model as in the data leverage is positively correlated with stockholdings.
Book Synopsis Portfolio Choice in the Presence of Housing by :
Download or read book Portfolio Choice in the Presence of Housing written by and published by . This book was released on 2004 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Asset Pricing and Optimal Portfolio Choice in the Presence of Illiquid Durable Consumption Goods by : Sanford J. Grossman
Download or read book Asset Pricing and Optimal Portfolio Choice in the Presence of Illiquid Durable Consumption Goods written by Sanford J. Grossman and published by . This book was released on 1987 with total page 76 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze a model of optimal consumption and portfolio selection in which consumption services are generated by holding a durable good. The durable good is illiquid in that a transaction cost must be paid when the good is sold. It is shown that optimal consumption is not a smooth function of wealth; it is optimal for the consumer to wait until a large change in wealth occurs before adjusting his consumption. As a consequence, the consumption based capital asset pricing model fails to hold. Nevertheless, it is shown that the standard, one factor, market portfolio based capital asset pricing model does hold in this environment. It is shown that the optimal durable level is characterized by three numbers (not random variables), say x, y, and z (where x
Book Synopsis Asset Pricing and Portfolio Choice Theory by : Kerry E. Back
Download or read book Asset Pricing and Portfolio Choice Theory written by Kerry E. Back and published by Oxford University Press. This book was released on 2017-01-04 with total page 608 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the 2nd edition of Asset Pricing and Portfolio Choice Theory, Kerry E. Back offers a concise yet comprehensive introduction to and overview of asset pricing. Intended as a textbook for asset pricing theory courses at the Ph.D. or Masters in Quantitative Finance level with extensive exercises and a solutions manual available for professors, the book is also an essential reference for financial researchers and professionals, as it includes detailed proofs and calculations as section appendices. The first two parts of the book explain portfolio choice and asset pricing theory in single-period, discrete-time, and continuous-time models. For valuation, the focus throughout is on stochastic discount factors and their properties. A section on derivative securities covers the usual derivatives (options, forwards and futures, and term structure models) and also applications of perpetual options to corporate debt, real options, and optimal irreversible investment. A chapter on "explaining puzzles" and the last part of the book provide introductions to a number of additional current topics in asset pricing research, including rare disasters, long-run risks, external and internal habits, asymmetric and incomplete information, heterogeneous beliefs, and non-expected-utility preferences. Each chapter includes a "Notes and References" section providing additional pathways to the literature. Each chapter also includes extensive exercises.
Book Synopsis Portfolio Choice in the Presence of Housing by : Joao F. Cocco
Download or read book Portfolio Choice in the Presence of Housing written by Joao F. Cocco and published by . This book was released on 2008 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: I show that investment in housing plays a crucial role in explaining the patterns of cross sectional variation in the composition of wealth and the level of stockholdings observed in portfolio composition data. Due to investment in housing, younger and poorer investors have limited financial wealth to invest in stocks, which reduces the benefits of equity market participation. House price risk crowds out stockholdings, but this crowding out effect is larger for low financial net-worth. Transaction costs of changing houses reduce the frequency of house trades and also lead investors to reduce their exposure to stocks. In the model as in the data leverage is positively correlated with stockholdings.
Book Synopsis Asset Pricing and Portfolio Choice Theory by : Kerry Back
Download or read book Asset Pricing and Portfolio Choice Theory written by Kerry Back and published by Oxford University Press, USA. This book was released on 2010 with total page 505 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book is intended as a textbook for Ph.D. students in finance and as a reference book for academics. It is written at an introductory level but includes detailed proofs and calculations as section appendices. It covers the classical results on single-period, discrete-time, and continuous-time models. It also treats various proposed explanations for the equity premium and risk-free rate puzzles: persistent heterogeneous idiosyncratic risks, internal habits, external habits, and recursive utility. Most of the book assumes rational behavior, but two topics important for behavioral finance are covered: heterogeneous beliefs and non-expected-utility preferences. There are also chapters on asymmetric information and production models. The book includes numerous exercises designed to provide practice with the concepts and also to introduce additional results. Each chapter concludes with a notes and references section that supplies references to additional developments in the field.
Book Synopsis Dynamic Asset Allocation in the Presence of Housing and Incomplete Markets by : Rune Mølgaard
Download or read book Dynamic Asset Allocation in the Presence of Housing and Incomplete Markets written by Rune Mølgaard and published by . This book was released on 2015 with total page 73 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies in continuous time and in an incomplete market setting the optimal housing, consumption, labor and portfolio choice of an agent in the presence of stochastic house prices and wages. Thus, the house prices and wage rates cannot be spanned by the financial market. In particular, the paper investigates the optimal strategies under two different preference specifications with respect to housing. The paper provides new closed-form solutions in the special case in which the market is complete. In addition, the paper also studies the optimal housing, consumption, labor, portfolio and welfare implications of frictions in the housing market. Particularly, the optimal strategies and welfare loss are analyzed if the house is a non-traded asset. This paper suggests that the consumption, labor, speculative investment and hedging of human capital is similar across preference specification and frictions in the market for housing when the economy is complete. The consumption and labor strategies are, however, dependent on frictions in the market for housing in the case where the economy is incomplete. The welfare loss from these frictions is small in magnitude but will influence the optimal consumption, labor and portfolio choice.
Book Synopsis An Intertemporal Capital Asset Pricing Model With Owner Occupied Housing by : Yongqiang Chu
Download or read book An Intertemporal Capital Asset Pricing Model With Owner Occupied Housing written by Yongqiang Chu and published by . This book was released on 2008 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies the portfolio choice and asset pricing in the presence of owner-occupied housing in a continuous time framework. Owner-occupied housing serves as an important consumption good as well as a dominant asset for most households. The theory part of this paper shows that the market portfolio is not mean-variance efficient; and traditional CAPM fails in a model with owner-occupied housing; however, a conditional linear factor pricing model can still be derived, in which the market portfolio return and housing return are two pricing factors. Moreover, the nondurable consumption to housing ratio, ch, is shown to affect expected returns in the same way as cay (the consumption-to-wealth ratio in Lettau and Ludvigson 2001a, 2001b) The empirical evidence shows that ch can predict asset returns at various horizon ranging from one quarter to two years. ch is also shown to enter linearly the stochastic discount factor of the economy. The cross-sectional Fama-MacBeth regressions show that the conditional models conditioning on ch perform much better than their unconditional counterparts, and the conditional two factor model derived in this paper performs almost as good as Fama-French three-factor model.
Book Synopsis Optimal Portfolio Choice with Housing and Tenure Decisions by : Patrick Coggi
Download or read book Optimal Portfolio Choice with Housing and Tenure Decisions written by Patrick Coggi and published by Sudwestdeutscher Verlag Fur Hochschulschriften AG. This book was released on 2009 with total page 132 pages. Available in PDF, EPUB and Kindle. Book excerpt: The aim of this book is to study portfolio and consumption decisions in the presence of durable goods, in particular housing. Part I provides a review of advances in portfolio theory. Dealing with durability raises complex mathematical issues discussed in the appendix. Part II focuses on a particularity of durable goods that has been studied very little, namely the decision to buy versus renting. We provide an original model of tenure choice and study its impact on households' optimal financial decisions. To achieve this we merge real options and portfolio theory and are able to obtain fairly explicit solutions, even with incomplete markets. In fact, it is the presence of market incompleteness, that is, the imperfect hedgeability by trading in financial assets of idiosyncratic risks linked to real estate that leads to our main finding: Risk aversion and market incompleteness reduce the relative attractiveness of homeownership relative to renting. We find that homeownership becomes more affordable and more likely as market incompleteness decreases and risks can be hedged better, while higher market incompleteness and risk aversion tend to depress house prices.
Download or read book Asset Pricing written by Jianping Mei and published by World Scientific. This book was released on 2003 with total page 265 pages. Available in PDF, EPUB and Kindle. Book excerpt: Real estate finance is a fast-developing area where top quality research is in great demand. In the US, the real estate market is worth about US$4 trillion, and the REITs market about US$200 billion; tens of thousands of real estate professionals are working in this area. The market overseas could be considerably larger, especially in Asia. Given the rapidly growing real estate securities industry, this book fills an important gap in current real estate research and teaching. It is an ideal reference for investment professionals as well as senior MBA and PhD students.
Book Synopsis Strategic Asset Allocation by : John Y. Campbell
Download or read book Strategic Asset Allocation written by John Y. Campbell and published by OUP Oxford. This book was released on 2002-01-03 with total page 272 pages. Available in PDF, EPUB and Kindle. Book excerpt: Academic finance has had a remarkable impact on many financial services. Yet long-term investors have received curiously little guidance from academic financial economists. Mean-variance analysis, developed almost fifty years ago, has provided a basic paradigm for portfolio choice. This approach usefully emphasizes the ability of diversification to reduce risk, but it ignores several critically important factors. Most notably, the analysis is static; it assumes that investors care only about risks to wealth one period ahead. However, many investors—-both individuals and institutions such as charitable foundations or universities—-seek to finance a stream of consumption over a long lifetime. In addition, mean-variance analysis treats financial wealth in isolation from income. Long-term investors typically receive a stream of income and use it, along with financial wealth, to support their consumption. At the theoretical level, it is well understood that the solution to a long-term portfolio choice problem can be very different from the solution to a short-term problem. Long-term investors care about intertemporal shocks to investment opportunities and labor income as well as shocks to wealth itself, and they may use financial assets to hedge their intertemporal risks. This should be important in practice because there is a great deal of empirical evidence that investment opportunities—-both interest rates and risk premia on bonds and stocks—-vary through time. Yet this insight has had little influence on investment practice because it is hard to solve for optimal portfolios in intertemporal models. This book seeks to develop the intertemporal approach into an empirical paradigm that can compete with the standard mean-variance analysis. The book shows that long-term inflation-indexed bonds are the riskless asset for long-term investors, it explains the conditions under which stocks are safer assets for long-term than for short-term investors, and it shows how labor income influences portfolio choice. These results shed new light on the rules of thumb used by financial planners. The book explains recent advances in both analytical and numerical methods, and shows how they can be used to understand the portfolio choice problems of long-term investors.
Book Synopsis Real Estate and its Role in Asset Pricing by : Cornelia Kullmann
Download or read book Real Estate and its Role in Asset Pricing written by Cornelia Kullmann and published by . This book was released on 2002 with total page 61 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines whether residential and commercial real estate risks carry positive risk premiums. Real estate assets have been excluded from most of the empirical asset pricing literature because of perceived data and measurement problems. This paper shows, on the contrary, that the available data are sufficient to capture risks inherent in holding real estate assets. Using both Fama-MacBeth cross-sectional regression techniques and a stochastic discount factor GMM framework, I test whether the cross-sectional explanatory power of well-known asset pricing models can be improved by adding a real estate factor. I find strong evidence for the hypothesis that both residential and commercial real estate risks are priced by the market and therefore have a definite role in empirical asset pricing specifications. The main finding that returns to real estate improve the performance of empirical asset pricing specifications is not sensitive to the choice of assets being priced and holds for size and pre-beta sorted portfolios, size and book-to-market sorted portfolios, and portfolios in which assets are sorted initially by market value and then by sensitivity to a real estate index. The research set forth in this study is not only relevant for a better understanding of the empirical performance of linear asset pricing models but also has implications for the development of optimal investment strategies. Since most equity market investors are homeowners, the existence of a common real estate factor in asset prices has to be considered in portfolio choice decisions.
Book Synopsis Implications of Homeownership for Endogenous Risk Aversion, Asset Pricing and Portfolio Composition by : Xuan Liang (Economist)
Download or read book Implications of Homeownership for Endogenous Risk Aversion, Asset Pricing and Portfolio Composition written by Xuan Liang (Economist) and published by . This book was released on 2015 with total page 99 pages. Available in PDF, EPUB and Kindle. Book excerpt: The dissertation studies the role of housing in asset pricing and household asset allocation. Housing is unique in the sense that it is both an asset and a consumption good. In addition, any adjustment in housing consumption will incur a non-convex adjustment cost. This makes housing adjustment infrequent. Due to these unique characteristics, the role of housing in a household portfolio is quite different from financial assets such as stocks and bonds. The first chapter, "The Housing CCAPM with Adjustment Costs and Heterogeneous Agents" examines how the inclusion of housing consumption in the utility function can increase the volatility and countercyclicality of the stochastic discount factor and thus help explain a higher level of equity premium despite only moderate curvature of the utility function. The keys to better performance of the model are (i) existence of the adjustment cost (ii) non-separability between housing goods and nondurable goods in the utility function and (iii) low substitutability between housing consumption and nondurable consumption. It is also shown that the housing CCAPM performs better than a standard CCAPM in explaining the variation of cross-sectional risk premia. Chapter 2, "Implications of the Housing Market for Endogenous Risk Aversion" studies household portfolio choice in a partial equilibrium model with housing consumption, adjustment costs, and varying housing prices. It is shown that household relative risk aversion is dependent on their house value to wealth ratio. Therefore, by changing the household's house value to wealth ratio, variation in house prices can affect household stock holdings through a change in household risk aversion. In addition, the model has two specific implications for households. The first is that volatile house price dynamics leads to more frequent moving. The second is that household moving leads to higher relative risk aversion. In general equilibrium, these effects would imply that volatile housing prices can lead to a higher moving frequency and thus result in a higher level of aggregate risk aversion, which would increase the price of risk in the risky asset markets. We provide empirical evidence that there is a high correlation between housing price volatility and the price of risk. Chapter 3, "Implications of the Housing Model for Moving Frequency, Relative Risk Aversion and the Portfolio Share of Risky Assets" tests the implications of the household portfolio choice model developed in Chapter 2 using household level data from the Panel Study of Income Dynamics and finds that the empirical evidence is consistent with the model. Firstly, we use cross-sectional variation in state level house prices and household moving to study the relationship between the volatility of house prices and moving frequency. Secondly, we use household moving and portfolio data to study the effect of moving on risk aversion. In addition, Chapter 3 also studies the effect of becoming unemployed on household moving by solving a model with housing consumption, adjustment costs, and a stochastic labor income process. The result suggests that the overall effect of unemployment is to reduce the frequency of moving. In addition, a sudden shift to an unemployed status can increase household risk aversion. Thus in general equilibrium, we would expect that a higher unemployment rate will increase economy wide risk aversion, which will in turn decrease the demand for stocks and increase the risk premium required. This provides a new channel (through the change in risk aversion) for the unemployment rate to affect asset prices.
Book Synopsis Essays on Asset Pricing and Portfolio Choice by : Benjamin Jonen
Download or read book Essays on Asset Pricing and Portfolio Choice written by Benjamin Jonen and published by . This book was released on 2012 with total page 113 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Pensionomics written by Matthias F. Jäkel and published by Springer Science & Business Media. This book was released on 2006-10-06 with total page 315 pages. Available in PDF, EPUB and Kindle. Book excerpt: Pensionomics puts forward a portfolio perspective on the combination of funded and unfunded pension arrangements. In a second-best type argument it is formally shown that a Pay-As-You-Go pension system can substitute the tradability of human capital. While this ideal form of diversification can not be implemented due to the imperfection of capital markets, one can design a typical Pay-As-You-Go system in such a way that it allows for the same intertemporal consumption allocations as the first-best solution.
Book Synopsis Handbook of Regional and Urban Economics, vol. 5B by : Gilles Duranton
Download or read book Handbook of Regional and Urban Economics, vol. 5B written by Gilles Duranton and published by Elsevier. This book was released on 2015-05-15 with total page 967 pages. Available in PDF, EPUB and Kindle. Book excerpt: Developments in methodologies, agglomeration, and a range of applied issues have characterized recent advances in regional and urban studies. Volume 5 concentrates on these developments while treating traditional subjects such as housing, the costs and benefits of cities, and policy issues beyond regional inequalities. Contributors make a habit of combining theory and empirics in each chapter, guiding research amid a trend in applied economics towards structural and quasi-experimental approaches. Clearly distinguished from the New Economic Geography covered by Volume 4, these articles feature an international approach that positions recent advances within the discipline of economics and society at large. Editors are recognized as leaders and can attract an international list of contributors Regional and urban studies interest economists in many subdisciplines, such as labor, development, and public economics Table of contents combines theoretical and applied subjects, ensuring broad appeal to readers
