Based on portfolio theory, this study derived an optimal portfolio including housing assets by investor characteristics.
In particular, the study focused on classifying investor types into age, income, assets, home ownership, multiple homeowners and residential areas, and analyzing the differences between the risk aversion coefficient and optimal asset allocation for each characteristic. An analysis of the risk aversion coefficient in this study showed that Korean investors have relatively risk-taking behaviors with lower risk aversion coefficient than other countries’ investors.
It was found that the lower the age, the more assets, the higher the income, and the lower the risk aversion coefficient.
On average, the optimal portfolio include 33.46 percent risk-free assets, 60.34 percent apartments, and 6.21 percent stocks. An investor with lower risk aversion holds on average a much larger proportion of their wealth in risky-assets.
Recently, low interest rates and ample liquidity have led to a rise in housing prices worldwide including in Korea.
In terms of demand, it is believed that housing is a relatively less risky asset, and that risk-taking behavior has also affected the rise in housing prices in Korea.