The Collateral Value of Housing: Evidence from Servicemember Pension Choice

56 Pages Posted: 17 Dec 2015 Last revised: 16 Dec 2016

Benjamin Bennett

Ohio State University (OSU) - Department of Finance

Radhakrishnan Gopalan

Washington University in St. Louis - John M. Olin Business School

Thomas Andreas Maurer

Washington University in St. Louis - John M. Olin Business School; London School of Economics & Political Science (LSE)

Date Written: September 1, 2016

Abstract

We evaluate the effect of personal characteristics and house prices on the choice made by servicemembers -- between 2001-09 -- among pension options that vary in the time-profile of cash flows. Servicemembers' personal discount rates (PDRs) vary through time and are larger during crisis years. Due to the collateral value of housing, an increase in house prices is associated with a lower propensity of servicemembers choosing immediate liquidity. The effect of house prices on pension choices is robust to controlling for macroeconomic factors including GDP growth, per capita income growth, changes in the state coincident index, unemployment rate, interest rates, stock returns and the net percentage of banks tightening loan standards.

Keywords: personal discount rate, time variation, macroeconomic variables, borrowing constraint, house price, collateral, housing, military pension

JEL Classification: D14, D91

Suggested Citation

Bennett, Benjamin and Gopalan, Radhakrishnan and Maurer, Thomas Andreas, The Collateral Value of Housing: Evidence from Servicemember Pension Choice (September 1, 2016). Available at SSRN: https://ssrn.com/abstract=2704043 or http://dx.doi.org/10.2139/ssrn.2704043

Benjamin Bennett (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

HOME PAGE: http://sites.google.com/site/benjaminbennettfinance/

Radhakrishnan Gopalan

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

Thomas Andreas Maurer

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

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