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The Impact of Housing Wealth on Stock Liquidity

Author

Listed:
  • Juan Luo
  • Limin Xu
  • Ralf Zurbruegg

Abstract

We document a housing wealth effect on the stock liquidity of local firms. We first demonstrate that the heterogeneity of homeownership rates across geographical areas can explain variations in the impact that changes in house prices have on local stock liquidity. We then show, consistent with expectations that an increase in housing wealth leads to a reduction in household risk aversion, that the liquidity of lottery stocks and stocks dominated by individual investors rises. We also show that it promotes local liquidity commonality and reduces the proportion of firm-specific information revealed in stock returns.

Suggested Citation

  • Juan Luo & Limin Xu & Ralf Zurbruegg, 2017. "The Impact of Housing Wealth on Stock Liquidity," Review of Finance, European Finance Association, vol. 21(6), pages 2315-2352.
    • Handle: RePEc:oup:revfin:v:21:y:2017:i:6:p:2315-2352.
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    File URL: http://hdl.handle.net/10.1093/rof/rfw057
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    References listed on IDEAS

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    1. Atif R. Mian & Amir Sufi, 2014. "House Price Gains and U.S. Household Spending from 2002 to 2006," Working Papers 2014-2, Princeton University. Economics Department..
    2. Joe Vavra & Johannes Stroebel, 2014. "House Prices and Retail Prices," 2014 Meeting Papers 72, Society for Economic Dynamics.
    3. Johannes Stroebel & Joseph Vavra, 2019. "House Prices, Local Demand, and Retail Prices," Journal of Political Economy, University of Chicago Press, vol. 127(3), pages 1391-1436.
    4. Rui Yao, 2005. "Optimal Consumption and Portfolio Choices with Risky Housing and Borrowing Constraints," The Review of Financial Studies, Society for Financial Studies, vol. 18(1), pages 197-239.
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    Cited by:

    1. Apergis, Nicholas & Dastidar, Sayantan Ghosh, 2024. "Local stock liquidity and local factors: Fresh evidence from US firms across states," Research in International Business and Finance, Elsevier, vol. 67(PA).
    2. Song, Jeongseop & Zhang, Fan, 2024. "Regional market uncertainty and corporate investment," The North American Journal of Economics and Finance, Elsevier, vol. 69(PB).
    3. David H. Downs & Bing Zhu, 2022. "Property market liquidity and REIT liquidity," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 50(6), pages 1462-1491, November.

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    More about this item

    Keywords

    Housing wealth; Stock liquidity; Local bias; Local commonality in liquidity;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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