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A Study on Effect of Housing Asset on Financial Portfolio Choice of Households

임미화 1,  Eui-Chul Chung 1

1건국대학교

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ABSTRACT

The purpose of this study is to analyze the effects of housing asset on financial portfolio choice behavior of households in Korea. Financial and liquid assets are divided into two categories based on the degree of risk: a relatively safe asset such as savings and insurance and a relatively risky asset such as stocks, funds and derivatives. Our focus is on how housing related variables affect households’ risky asset holdings. Housing related variables include housing tenure, amount of mortgage principal relative to house value, and house value relative to total asset. Similar variables are also considered for the other real estate. Empirical results show that the ratio of risk asset to liquid asset is higher as households have more income and net worth and as they have higher risk preference for financial asset investment. It is also found that the ratio of mortgage principal to house value and the ratio of house value to total asset are important variables to their risky asset holdings. Thus, it can be concluded that households’ financial portfolio choice is strongly influenced by their real estate decisions.

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