The Interactive Effects of Home Ownership and Housing Prices on Asset Allocations
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Date
2018-05
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The Ohio State University
Abstract
Finding the optimal portfolio construction has in recent years been a trendy topic among institutional and individual investors. Since the housing bubble of 2007, researchers have paid more attention to the relationship of housing markets and the financial world to take advantage of how these relationships affect investment decisions. Many relevant types of research led to an important question that this research is trying to investigate: when housing prices move, how investors with different housing status make asset allocation decisions? By incorporating housing-related data as well as non-financial factors such as age, sex, income level, among other controls, this research builds multivariate regression models to forecast three types of information of investors regarding asset allocation: asset participation probability, holding values, and the percentage of each asset class. Initial results show that when housing prices increase, both homeowners and home renters are less likely to participate in risky assets, such as stocks, certificate of deposits, and Bond. Homeowners and home renters also have different investment behaviors concerning changing the holding values of all five key asset classes: Checking, Savings, Stocks, Certificates of Deposits, and Bond. Moreover, homeowners and home renters have different strategies of asset allocation percentages only for Stocks and Certificates of Deposits. Such analyses and models will provide an innovative framework to quantify non-financial factors from the behavioral finance standpoint and enable institutions to forecast the overall financial market trends.
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Keywords
Housing Prices, Home Ownership, Asset Allocation