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

Yezhou Sha, Zilong Wang and Zhichao Yin

Journal of Economic Behavior & Organization, 2024, vol. 224, issue C, 390-406

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.

Keywords: Stock Market Participation; House Purchase Restriction; Risk Aversion (search for similar items in EconPapers)
JEL-codes: D14 G11 G50 R28 R38 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:224:y:2024:i:c:p:390-406

DOI: 10.1016/j.jebo.2024.06.012

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