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

Mayssun El-Attar () and Markus Poschke
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Mayssun El-Attar: McGill University

No 5246, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Trusting behavior has been shown to affect households' portfolio choice between risky and risk-free financial assets. We extend the analysis of the effect of trust on portfolio choice to include the dominant component of households' portfolios, real estate. In a simple model, we show how the effect of trust on expected investment returns affects portfolio composition, including the share of real estate. Using data from the European Social Survey, we estimate individual-level trust as an unobserved attitude using survey questions on personal attitudes by applying a hierarchical item response model. Combining these estimates with data on Spanish households' financial decisions from the Survey of Household Finances (EFF) conducted by the Bank of Spain, 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 financial development more generally.

Keywords: portfolio choice; trust; housing; item response models (search for similar items in EconPapers)
JEL-codes: D1 D8 Z1 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2010-10
New Economics Papers: this item is included in nep-soc and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published - published in: Review of Finance, 2011, 15 (4), 727-756

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Journal Article: Trust and the Choice Between Housing and Financial Assets: Evidence from Spanish Households (2011)
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