Consumption and Investment Motives and the Portfolio Choices of Homeowners
نویسنده
چکیده
This article investigates the portfolio choices of homeowners, taking into account the investment constraint introduced by Henderson and Ioannides (1983). This constraint requires housing investment by homeowners to be at least as large as housing consumption. It is shown that when the constraint is binding, the homeowner's optimal portfolio is ineffcient in a mean-variance sense. Thus, portfolio inef®ciency is not an indication that consumers are irrational or careless in their ®nancial decisions. Instead, inef®ciency can be seen as the result of a rational balancing of the consumption bene®ts and portfolio distortion associated with housing investment.
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