The Impact of Housing Wealth on Stock Liquidity

Review of Finance Forthcoming

52 Pages Posted: 5 Nov 2014 Last revised: 16 Feb 2017

See all articles by Juan Luo

Juan Luo

University of Adelaide - Business School; Financial Research Network (FIRN)

Limin Xu

University of Adelaide - Business School

Ralf Zurbruegg

University of Adelaide; Financial Research Network (FIRN)

Date Written: October 25, 2016

Abstract

We document a housing wealth effect on the stock liquidity of local firms. We first demonstrate that the heterogeneity of homeownership rates across geographical areas can explain variations in the impact that changes in house prices have on local stock liquidity. We then show, consistent with expectations that an increase in housing wealth leads to a reduction in household risk aversion, that the liquidity of lottery stocks and stocks dominated by individual investors rises. We also show that it promotes local liquidity commonality and reduces the proportion of firm-specific information revealed in stock returns.

Keywords: housing wealth, stock liquidity, local bias, local commonality in liquidity

JEL Classification: G11, G12, R31

Suggested Citation

Luo, Juan and Xu, Limin and Zurbruegg, Ralf, The Impact of Housing Wealth on Stock Liquidity (October 25, 2016). Review of Finance Forthcoming, Available at SSRN: https://ssrn.com/abstract=2518837 or http://dx.doi.org/10.2139/ssrn.2518837

Juan Luo

University of Adelaide - Business School ( email )

10 Pulteney Street
Adelaide, South Australia 5005
Australia
+61 8 8313 0133 (Phone)
+61 8 8223 4782 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Limin Xu (Contact Author)

University of Adelaide - Business School ( email )

10 Pulteney Street
Adelaide, South Australia 5005
Australia

Ralf Zurbruegg

University of Adelaide ( email )

233 North Terrace
Department of Finance
Adelaide SA 5005
Australia
+61 8 8303 5535 (Phone)
+61 8 8303 4368 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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