The Effect of Homeownership on Households' Financial Portfolio Choices: Evidence from the Panel Study of Income Dynamics.
Abstract: This paper aims to explore the impact of homeownership on
households' financial portfolio choices. Most current theoretical researchers of household
finance find that there is a negative effect of housing on the financial assets. However
there is no clear conclusion on empirical research. Some research indicates a positive
relationship between housing and holdings of financial assets. ... read moreOthers do not find a strong
relationship. Chetty and Szeidl (2012) explain possible reasons that lead to this
discrepancy. First, since both the home tenure choice and financial investment choice are
endogenous, directly regressing portfolio choices on tenure choice and housing value would
be strongly biased. Second, it is important to distinguish and isolate the effects of home
equity wealth and mortgage debt on portfolio choices, since home equity wealth and mortgage
debt play opposite roles and have opposite-signed effects on financial investment choices.
Following Chetty and Szeidl's analysis, I conduct an empirical study using data from the
Panel Study of Income Dynamics. I develop a two stage least square estimation using two
instrumental variables from cross-sectional analysis and a Difference-in-Difference
estimation using panel data in 1999-2009. I find that increases in mortgage debt reduce
stock holding and raise safe asset holding. On average, a household with 10% increase in
mortgage debt has a 3% lower portfolio share of stocks from the least square analysis.
However, the DID estimation does not give a significant effect of housing on both stock
holding and safe asset holding. This may be caused by the small sample sizes used in
Thesis (M.S.)--Tufts University, 2013.
Submitted to the Dept. of Economics.
Advisor: Yannis Ioannides.
Committee: Jeffrey Zabel.
Keyword: Economics.read less