Journal of Banking & Finance Vol. 116 2020
A mean-variance benchmark for household portfolios over the life cycle
Abstract
We embed human capital as an innate, illiquid asset in Markowitz’ one-period mean-variance framework. By solving the Markowitz problem for different values of the ratio of human capital to financial wealth, we emulate life-cycle effects in household portfolio decisions. The portfolio derived with this simple approach matches the optimal portfolio from the much more complicated dynamic life-cycle models. An application illustrates that young households may optimally refrain from stock investments because a house investment combined with a mortgage is more attractive from a pure investment perspective. Another application examines the theoretical support for the observed growth/value tilts in households’ portfolios.
- DOI
- 10.1016/j.jbankfin.2020.105833
- Volume
- 116
- Pages
- 105833
- Language
- en
- Sources
- openalex crossref bibtex:phds-export.bib