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Unexpected housing wealth appreciation and stock market participation

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  • Kong, Dongmin
  • Cheng, Yawen
  • Liu, Shasha

Abstract

This study examines the causal effects of housing wealth appreciation on the stock market participation of households in China. Households that purchase a house with an area less than or equal to 90 m2 faced a significantly lower down payment following the unexpected announcements of a series of policies beginning in 2006, thus creating discontinuity in house size and a housing price jump around the cutoff point. Using the policy shock to implement a regression discontinuity design, we find the following: (1) Unexpected housing wealth appreciation substantially promotes households’ stock market participation. (2) The housing wealth effect relaxes households’ liquidity constraints and thus encourages them to invest in stocks. (3) The housing wealth effect is pronounced among younger individuals and employees of state-owned enterprises. Our findings support the positive housing wealth effect on stock market participation and provide clear policy implications for regulators.

Suggested Citation

  • Kong, Dongmin & Cheng, Yawen & Liu, Shasha, 2021. "Unexpected housing wealth appreciation and stock market participation," Journal of Housing Economics, Elsevier, vol. 52(C).
    • Handle: RePEc:eee:jhouse:v:52:y:2021:i:c:s1051137721000206
    DOI: 10.1016/j.jhe.2021.101768
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    Cited by:

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    2. Patrick Manning, 2024. "The impact of US housing demand and supply shocks on the Australian economy: Analysis implementing a SVAR model," Australian Economic Papers, Wiley Blackwell, vol. 63(S1), pages 79-88, May.
    3. Lorenz Meister & Karla Schulze, 2022. "How Shocks Affect Stock Market Participation," DIW Roundup: Politik im Fokus 142, DIW Berlin, German Institute for Economic Research.

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