Optimal Asset Allocation over the Life-Cycle in China: the Role of Housing

In this paper, we develop an optimal dynamic asset allocation model of a typical Chinese resident with stochastic labor income, risky owner-occupied house, and try to analyze the character of Chinese residents' optimal life-cycle investment and portfolio choice. Our analysis indicates that the optimal life-cycle housing position and stockholding of Chinese residents are hump-shaped in ages. Labor income risk and house price risk crowd out the stockholdings of residents during all their life-cycle, and have significant impact on residents' housing position and non-housing consumption.