Unexpected Housing Wealth Appreciation and Stock Market Participation

44 Pages Posted: 23 May 2021

See all articles by Dongmin Kong

Dongmin Kong

School of Economics, Huazhong University of Science and Technology

Yawen Cheng

Huazhong University of Science and Technology

Lihua Liu

Huazhong University of Science and Technology

Date Written: May 18, 2021

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.

Keywords: housing appreciation; stock market participation; regression discontinuity; China

Suggested Citation

Kong, Dongmin and Cheng, Yawen and Liu, Lihua, Unexpected Housing Wealth Appreciation and Stock Market Participation (May 18, 2021). Available at SSRN: https://ssrn.com/abstract=3849025 or http://dx.doi.org/10.2139/ssrn.3849025

Dongmin Kong (Contact Author)

School of Economics, Huazhong University of Science and Technology ( email )

Bldg. of Econ. School, Louyu Rd. 1037#
HUST, Hongshan Dist.
Wuhan, Hubei 430074
China

Yawen Cheng

Huazhong University of Science and Technology ( email )

1037 Luoyu Road
Wuhan, Hubei 430074
China

Lihua Liu

Huazhong University of Science and Technology ( email )

1037# Luoyu Road, Hongshan Dist.
Wuhan, Hubei 430074
China

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