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Trust and the Choice Between Housing and Financial Assets: Evidence from Spanish Households

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  • Mayssun El-Attar
  • Markus Poschke

Abstract

Trusting behavior has been shown to affect households' portfolio choice between risky and risk-free financial assets. We extend the analysis to include the dominant component of households' portfolios, real estate. Using data from the European Social Survey, we estimate individual-level trust by applying a hierarchical item response model. Combining these estimates with data on Spanish households' financial decisions from the Survey of Household Finances, we show that households with less trust invest more in housing and less in financial assets, in particular risky ones. Trust thus may drive not only (limited) stock market participation but also financial development more generally. Copyright 2011, Oxford University Press.

Suggested Citation

  • Mayssun El-Attar & Markus Poschke, 2011. "Trust and the Choice Between Housing and Financial Assets: Evidence from Spanish Households," Review of Finance, European Finance Association, vol. 15(4), pages 727-756.
  • Handle: RePEc:oup:revfin:v:15:y:2011:i:4:p:727-756
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    Cited by:

    1. Rahul Mehrotra & Vincent Somville & Lore vandewalle, 2016. "Increasing trust in the bank to enhance savings: Experimental evidence from India," CMI Working Papers 1, CMI (Chr. Michelsen Institute), Bergen, Norway.
    2. Jeremy Burke & Angela Hung, 2015. "Trust and Financial Advice," Working Papers WR-1075, RAND Corporation.
    3. Jesse Bricker & Geng Li, 2017. "Credit Scores, Social Capital, and Stock Market Participation," Finance and Economics Discussion Series 2017-008, Board of Governors of the Federal Reserve System (U.S.).
    4. Christoph T. Weiss, 2012. "Persistent Attitudes and Behaviors," "Marco Fanno" Working Papers 0143, Dipartimento di Scienze Economiche "Marco Fanno".
    5. repec:eee:jbfina:v:87:y:2018:i:c:p:102-117 is not listed on IDEAS
    6. Liang, Pinghan & Guo, Shiqi, 2015. "Social interaction, Internet access and stock market participation—An empirical study in China," Journal of Comparative Economics, Elsevier, vol. 43(4), pages 883-901.
    7. Liu, Yuna, 2016. "Trust and stock market correlation: a cross-country analysis," Umeå Economic Studies 924, Umeå University, Department of Economics.
    8. Luigi Paciello & Claudio Michelacci, 2016. "Forward Misguidance," 2016 Meeting Papers 617, Society for Economic Dynamics.
    9. Frederick K. Changwony & Kevin Campbell & Isaac T. Tabner, 2015. "Social Engagement and Stock Market Participation," Review of Finance, European Finance Association, vol. 19(1), pages 317-366.
    10. Beckmann, Elisabeth & Mare, Davide Salvatore, 2017. "Formal and informal household savings: how does trust in financial institutions influence the choice of saving instruments?," MPRA Paper 81141, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • Z1 - Other Special Topics - - Cultural Economics

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