Income Risk and Mortgage Choice Among Japanese Households

27 Pages Posted: 4 Feb 2013 Last revised: 28 Feb 2017

See all articles by Michio Naoi

Michio Naoi

Keio University

Yoko Moriizumi

Kanagawa University - Faculty of Economics

Norifumi Yukutake

Nihon University - College of Economics

Date Written: February 4, 2013

Abstract

This paper empirically examines the relationship between income risk and mortgage instrument choice among Japanese households. Since theoretical predictions about the impact of income risks on mortgage choice are mixed, it is important to investigate empirically whether or not risky households borrow ARM loans. In order to answer this question, we construct several measures of income variability and unemployment risk that capture the income risk of the specific household. Our empirical result suggests that these income risk measures are in general negatively associated with the choice of fixed-rate mortgage contract, indicating that risky borrowers are more likely to choose adjustable-rate mortgages. Furthermore, we also find that the impact of income risk on the mortgage choice depends critically on the individual risk preferences. While there is significantly negative impact of income variability and unemployment risk on the mortgage choice for the risk averse borrowers, no systematic relationship can be found for borrowers with low risk aversion.

Keywords: mortgage choice, income risk, risk aversion

JEL Classification: D12, G21, R21

Suggested Citation

Naoi, Michio and Moriizumi, Yoko and Yukutake, Norifumi, Income Risk and Mortgage Choice Among Japanese Households (February 4, 2013). Available at SSRN: https://ssrn.com/abstract=2211396 or http://dx.doi.org/10.2139/ssrn.2211396

Michio Naoi (Contact Author)

Keio University ( email )

2-15-45 Mita
Minato-ku, Tokyo 108-8345
Japan

HOME PAGE: http://https://sites.google.com/site/michionaoi/

Yoko Moriizumi

Kanagawa University - Faculty of Economics ( email )

3-27-1, Rokkakubashi
Kanagawa-ku, Yokohama City
JAPAN 221-8686
81-45-413-2678 (Phone)
+81-45-413-2678 (Fax)

Norifumi Yukutake

Nihon University - College of Economics ( email )

Tokyo
Japan

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