Stock Market Participation with Formal versus Informal Housing Debt

We study the effects of mortgage debt and informal home loans on stock ownership. Mortgage debt is typically originated with licensed financial institutions while informal home loans are obtained from private lending. Using the China Household Finance Survey data, we show that mortgage debt has a positive relationship, while informal home loans have a negative relationship, with a household’s likelihood and degree of subsequent stock market participation. Instrumental variable estimates identify a causal impact of these effects. Further tests demonstrate cross-sectional variations of these effects across urban development, education, financial literacy, loan interest rate, maturity, and funding sources.

Keywords: Stock market participation; Risky asset share; Mortgage debt; Informal finance; Housing

JEL Classification: D10, G11, G51

Suggested Citation: Suggested Citation

Yang, Jie and Jiang, Danling and Xiao, Keli, Stock Market Participation with Formal versus Informal Housing Debt (February 6, 2023). Available at SSRN: https://ssrn.com/abstract=3516166 or http://dx.doi.org/10.2139/ssrn.3516166