60 Pages Posted: 22 Mar 2010 Last revised: 26 Jan 2017
Date Written: January 25, 2017
The stock market participation rate among homeowners is twice as high as among renters. This paper builds a life-cycle portfolio choice model with endogenous housing tenure choice. A stylized form of preference heterogeneity generates a substantial difference in participation rates. A majority of households has a large savings motive and choose to be homeowners and participate. A minority of households has a small savings motive, choose to be renters and find it less worthwhile to participate. Difference-in-difference regressions do not attribute the difference to transitions from renting to owning or vice versa, supporting the message that time-invariant characteristics matter.
Keywords: Limited Participation, Home Ownership, Household Finance
JEL Classification: G11, E44, D91, E21
Suggested Citation: Suggested Citation