Household reaching-for-yield behavior and low interest rate in China

Mizhou Chen and Pan Li

Finance Research Letters, 2023, vol. 55, issue PB

Abstract: By employing data from the China Household Finance Survey spanning from 2011 to 2019, we examine the impact of low interest rate policies on household behavior. Our findings suggest that Chinese households tend to exhibit reaching-for-yield behavior by increasing their allocation of high-yield risky assets in response to low interest rates. This tendency is likely due to the anchoring effect, proportional thinking, and herding effect. We also find that the reaching-for-yield behavior among affluent households under low interest rate conditions is irrational and ultimately leads to significant losses.

Keywords: Low interest rate; Household reaching-for-yield behavior; Anchoring effect; Proportional thinking; Herding effect (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:55:y:2023:i:pb:s1544612323003392

DOI: 10.1016/j.frl.2023.103967

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