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Household Portfolio Choice Before and After a House Purchase

Author

Listed:
  • Ran Sun Lyng

    (Department of Economics and Business Economics, Aarhus University, Denmark)

  • Jie Zhou

    (University of Winnipeg, Canada)

Abstract

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.

Suggested Citation

  • Ran Sun Lyng & Jie Zhou, 2019. "Household Portfolio Choice Before and After a House Purchase," Economics Working Papers 2019-01, Department of Economics and Business Economics, Aarhus University.
    • Handle: RePEc:aah:aarhec:2019-01
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    File URL: https://repec.econ.au.dk/repec/afn/wp/19/wp19_01.pdf
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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