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Does Residential Housing Crowd Out or Promote Households’ Stock Investment? Evidence from China

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  • Qin Zhou
  • Qing He
  • Yan Yuan

Abstract

Limited participation in risky financial markets has long been a puzzle. Empirical evidence shows a strong relationship between housing and investment of risky financial assets, but with varying and conflicting results. We contribute to the literature by distinguishing housing for consumption and for investment, and by considering the role of housing price expectation when exploring households’ participation in stock markets. We find that home equity ratio and housing area play significant roles in households’ participation in stock markets. Households with higher home equity ratio or larger housing are less likely to own, and hold fewer stock assets if they do. We also find that the number of houses has a positive effect on stock investment for households with the same home equity ratio and housing size, which could be explained by credit rationing. Furthermore, housing price expectation has a negative effect on stock investment; this effect is larger for homeowners with multiple houses who are more likely to take houses for investment. Our results show insights into conflicting results of the relationship between real estate and stock investment.

Suggested Citation

  • Qin Zhou & Qing He & Yan Yuan, 2017. "Does Residential Housing Crowd Out or Promote Households’ Stock Investment? Evidence from China," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 53(8), pages 1869-1893, August.
  • Handle: RePEc:mes:emfitr:v:53:y:2017:i:8:p:1869-1893
    DOI: 10.1080/1540496X.2016.1199381
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    Cited by:

    1. Yin, Zhichao & Liu, Jiayi & Wang, Yumeng, 2023. "Fertility policy and stock market participation: Evidence from the universal two-child policy in China," International Review of Financial Analysis, Elsevier, vol. 86(C).

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