Abstract
he present paper studies the selection of household portfolio in the presence of housing market. A major theory in the study of housing prices and their fluctuations is the theory of household portfolio. The present study attempts to examine the theory to show whether it applies to Iranian economy. For our purpose, we examined all data about the assets under study, including stock shares, foreign currency, gold coins, banking deposits, bonds, and housing over the fiscal period from 1991 to 2006. Applying the mean – variance spanning test model with MATLAB to calculate the return, risk, and correlation coefficients during the period, the optimal composition of assets in household portfolio was determined. The model operates through simulating and giving different weights to each tier of assets. Firstly, categorizing the households into low, medium, and high-risk, it determines the optimal composition of household portfolio based on degrees of risk-taking in the absence of housing. Then it examines whether the existence of housing in the household portfolio and a household's choosing it as an asset would help improve the level of risk and return in the portfolio and change the portfolio composition. The efficient frontier which is the envelope curve of the most efficient portfolios was also extracted. The results show that housing is a significant asset in household portfolio in such a way that the presence of housing would influence the efficient frontier. Moreover, in a spell of rising foreign exchange rates, foreign currencies obtained a substantial portion of household portfolios, but a series of stabilization and unification policies pushed them out of portfolios. During the period, housing was the
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