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Household reaching-for-yield behavior and low interest rate in China

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  • Chen, Mizhou
  • Li, Pan

Abstract

By employing data from the China Household Finance Survey spanning from 2011 to 2019, we examine the impact of low interest rate policies on household behavior. Our findings suggest that Chinese households tend to exhibit reaching-for-yield behavior by increasing their allocation of high-yield risky assets in response to low interest rates. This tendency is likely due to the anchoring effect, proportional thinking, and herding effect. We also find that the reaching-for-yield behavior among affluent households under low interest rate conditions is irrational and ultimately leads to significant losses.

Suggested Citation

  • Chen, Mizhou & Li, Pan, 2023. "Household reaching-for-yield behavior and low interest rate in China," Finance Research Letters, Elsevier, vol. 55(PB).
    • Handle: RePEc:eee:finlet:v:55:y:2023:i:pb:s1544612323003392
    DOI: 10.1016/j.frl.2023.103967
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