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Household Portfolio Choice Before and After a House Purchase

Author

Listed:
  • Ran S. Lyng
  • Jie Zhou

Abstract

Using unique administrative panel data from Denmark, this paper documents the development of households’ liquid wealth, equity market participation (the extensive margin), and the conditional risky asset share of liquid wealth (the intensive margin) over a 7-year period around a house purchase. We find that households’ equity market participation rate drops during the year of house purchase. Conditional on participation, the risky asset share of liquid 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 affect the risky asset demand after a house purchase, the debt retirement channel and the diversification effect dominate the liquidity concern.

Suggested Citation

  • Ran S. Lyng & Jie Zhou, 2019. "Household Portfolio Choice Before and After a House Purchase," Departmental Working Papers 2019-04, The University of Winnipeg, Department of Economics.
  • Handle: RePEc:win:winwop:2019-04
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    File URL: http://economics.uwinnipeg.ca/RePEc/winwop/2019-04.pdf
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    References listed on IDEAS

    as
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    More about this item

    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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