Housing Valuation, Wealth Perception, and Homeowners’ Portfolio Composition
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This study explores the link between wealth perception from an appreciation of the residential property price and homeowners’ preference toward asset categories pooled by risk. Household survey data for Portugal were used to build shares of low, medium, and high risk assets representing fractions of household’s total wealth. Data showed incomplete household portfolios along with housing capturing the largest share of households’ wealth, in line with the literature on composition puzzles. The findings indicate robust empirical evidence that the rate of housing valuation is an indicator of households’ wealth perception. When the housing price appreciates with respect to its initial cost, households suffer an endowment effect and tend to increase diversity in their portfolio, expanding the holdings of safe deposits as they raise the share of high risk assets.
KeywordsHousehold finance Prospect theory Portfolio composition Homeownership Fractional logit models
JEL ClassificationC35 C58 D14 G11
This work was supported by the Fundação para a Ciência e Tecnologia through the UID/GES/00315/2013 Grant.
Compliance with Ethical Standards
This article does not contain any studies with human participants performed by any of the authors.
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