Household portfolio choice before and after a house purchase

Author:

Lyng Ran Sun1ORCID,Zhou Jie2

Affiliation:

1. Faculty of Management and Business the Finnish Centre of Excellence in Tax Systems Research (FIT), Tampere University Tampere Finland

2. Department of Economics University of Winnipeg Winnipeg Manitoba Canada

Abstract

AbstractUsing a unique administrative panel data from Denmark, this article documents the dynamic evolution of households' financial wealth, the equity market participation rate (extensive margin), and the conditional risky asset share of financial wealth (intensive margin) over a 7‐year period around a house purchase. We find that households' equity market participation rate falls during the year of house purchase. Conditional on participation, the risky asset share of financial wealth follows a V‐shape around the house purchase. It decreases and reaches the lowest point 1 year before a house purchase, but jumps up immediately after. This finding suggests that of the three channels identified in the literature that are related to the risky asset demand after a house purchase, the debt retirement channel and the diversification effect dominate the liquidity concern.

Funder

Danmarks Frie Forskningsfond

Publisher

Wiley

Subject

Economics and Econometrics,Finance,Accounting

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