The influence of home value in the risk aversion of private investment Portfolios

Abstract

This paper shows a theorical proposal on the ownership of a household's own home, when is mortgaged and is part of the investment portfolio, as well as its relation to the investor's risk behavior when they get the mortgage. To this end, Markowitz mean-variance is taken as a theoretical reference along with Cobb-Douglas utility function that states a relation between consumption and home.
As a result, it is concluded that, homeownership can generate some kind of profitability or maintain its financial equilibrium, when the investor has the option of choosing between the purchase of house and the investment in another type of variable financial income. One limitation of the study was not to consider investor risk aversion in a subjective way. The paper originality lays in the inclusion of own house profitability in a household investment portfolio, simultaneously considering risk aversion and market risk when the house is mortgaged.