Stockholding: Does Housing Wealth Matter?

Abstract

The existence of an equity premium puzzle has been largely emphasized in the empirical literature: one observes low risky assets holding that the standard portfolio choice model (with expected and discounting utility and homothetic preferences) is not able to explain. Besides modi…cations of rationality assumptions, other changes have been introduced in the standard framework to account for this equity premium puzzle: the existence of transaction costs, liquidity constraints or other risks (e.g. risks associated with employment, income, health,). These background risks (i.e. risks that are unavoidable, exogenous and independent from the …nancial market risk) may lead households to reduce their stockownership in order to limit their global exposure to risk. Recent developments examine the role of housing on stockholding as another background risk. This paper analyses the empirical link between stockholding and housing wealth within this framework. We use the French wealth survey (Enquête Patrimoine 2004, Insee) that gives us detailed information on households portfolio, socio-demographic variables, and several measures of preference and exposition to various risks (income, unemployment, health, and business). We …nd that an increase in the housing to net wealth ratio crowds out stock market investment for a given total …nancial wealth: when facing real estate exposure to risk, households tend to moderate their global exposure to risk by limiting the share of their …nancial wealth invested in stocks. Among the other signi…cant determinants of the equity premium puzzle, we emphasize the role of transaction and information costs, the attitude toward risk and the exposition to various risks in hampering investments in stocks.

Is There Evidence of Shift-Contagion in International Housing Markets?

“…First, there is evidence of international exposure to foreign housing markets, as evidenced by the share of foreign investors in domestic markets that may arbitrage across markets. 3 Second, housing wealth usually represents approximately half of total wealth (see Arrondel and Savignac (2009), de Bandt et al, 2010b). In addition, securitization has broadened the number and types of investors, which go beyond the direct bene…ciaries of housing services.…”

“…One should acknowledge, however, the compilation of data 2 We refer the reader to the abundant literature on the heterogeneity of housing markets in the US, with, amongst others, Goodman and Thibodeau (2008). 3 Non residents represented around 4% of the number of housing transactions in France in 2004, concentrating on higher value units (Fauvet, 2007;Friggit, 2007). In Spain, non residents accounted for 9% of transactions in 2006, but 4,2% in 2009 (source: Estadistica Registral Immobiliara).…”

The Role of Happiness in Financial Decisions: Evidence from Financial Portfolio Choice and Five European Countries

“…Arrondel et al (2010) also presented evidence supporting a positive association between stock ownership and household age. In contrast, Arrondel and Savignac (2009) found no correlation between stockholding and age. Age was recorded as 'age at date of interview'.…”

Household choices on investing in financial risky assets: Do national institutional factors have their own merit?

“…Ameriks and Zeldes (2004) illustrate that portfolio shares have a hump‐shaped age profile, while Bogan (2008) and Rooij, Lusardi, and Alessie (2007) support that age has a positive impact on stock market participation. Arrondel et al (2010) also present evidence of a positive association between stock investments and households' age; in contrast, Arrondel and Savignac (2009) find no correlation between stockholding and the age driver.…”