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Household Portfolio Choice Before and After a House Purchase
We document the temporal patterns of the household portfolio choice over a 7-year period around a house purchase, using unique administrative panel data from Denmark. We find that (i) households accumulate considerably more liquid wealth in a few years before the purchase of a house and draw down liquid wealth at the year of purchase; (ii) the equity market participation rate drops during the year of the house purchase; and (iii) conditional on participation, the risky asset share of liquid wealth decreases and reaches the lowest point 1 year before a house purchase but jumps up immediately after. These findings suggest that of the three channels identified in the literature that affect the risky asset demand after a house purchase, the diversification effect and the debt retirement channel dominate the liquidity demand. Liquidity demand, however, has a larger effect on the portfolio choice for poorer households after a house purchase.
Household Portfolio Choice Before and After a House Purchase
We document the temporal patterns of the household portfolio choice over a 7-year period around a house purchase, using unique administrative panel data from Denmark. We find that (i) households accumulate considerably more liquid wealth in a few years before the purchase of a house and draw down liquid wealth at the year of purchase; (ii) the equity market participation rate drops during the year of the house purchase; and (iii) conditional on participation, the risky asset share of liquid wealth decreases and reaches the lowest point 1 year before a house purchase but jumps up immediately after. These findings suggest that of the three channels identified in the literature that affect the risky asset demand after a house purchase, the diversification effect and the debt retirement channel dominate the liquidity demand. Liquidity demand, however, has a larger effect on the portfolio choice for poorer households after a house purchase.
Household Portfolio Choice Before and After a House Purchase
Lyng, Ran Sun (author) / Zhou, Jie (author)
2019-01-23
Lyng , R S & Zhou , J 2019 ' Household Portfolio Choice Before and After a House Purchase ' Economics Working Papers , no. 2019-01 , Institut for Økonomi, Aarhus Universitet , Aarhus .
Paper
Electronic Resource
English
DDC:
720
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