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House purchase restriction and stock market participation: Unveiling the role of nonpecuniary consideration

Author

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  • Sha, Yezhou
  • Wang, Zilong
  • Yin, Zhichao
Abstract
This study investigates how house purchase restriction (HPR) affects stock market participation among households in China. Using a staggered difference-in-differences (DID), we observe a decrease in household stock market participation following the adoption of the HPR policy in a city. HPR decreases stock market participation by 1.72 percentage points and households' net equity purchase and equity to total wealth ratio by 17% and 0.2 percentage points, respectively. These findings suggest that house and stock investments cannot substitute each other. Furthermore, our analysis reveals that the negative effect of HPR is not driven by pecuniary consideration (house price and income risks) but rather by nonpecuniary consideration (risk aversion). Although the HPR policy is designed to curb the surge in local house prices, it reduces household's demand for equity investing, which creates a negative externality on the financial market.

Suggested Citation

  • Sha, Yezhou & Wang, Zilong & Yin, Zhichao, 2024. "House purchase restriction and stock market participation: Unveiling the role of nonpecuniary consideration," Journal of Economic Behavior & Organization, Elsevier, vol. 224(C), pages 390-406.
    • Handle: RePEc:eee:jeborg:v:224:y:2024:i:c:p:390-406
    DOI: 10.1016/j.jebo.2024.06.012
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    More about this item

    Keywords

    Stock Market Participation; House Purchase Restriction; Risk Aversion;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G50 - Financial Economics - - Household Finance - - - General
    • R28 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Government Policy
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy

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