The Effect of Housing on Portfolio Choice

44 Pages Posted: 20 Sep 2016

See all articles by Raj Chetty

Raj Chetty

Harvard University

László Sándor

Office of Research

Adam Szeidl

Central European University

Date Written: September 16, 2016


We show that characterizing the effects of housing on portfolios requires distinguishing between the effects of home equity and mortgage debt. We isolate exogenous variation in home equity and mortgages by using differences across housing markets in house prices and housing supply elasticities as instruments. Increases in property value (holding home equity constant) reduce stockholding, while increases in home equity wealth (holding property value constant) raise stockholding. The stock share of liquid wealth would rise by 1 percentage point – 6% of the mean stock share – if a household were to spend 10% less on its house, holding fixed wealth.

Keywords: Portfolio Choice, Housing, Household Finance, Consumption Commitments

JEL Classification: D14, G21, R29

Suggested Citation

Chetty, Raj and Sándor, László and Szeidl, Adam, The Effect of Housing on Portfolio Choice (September 16, 2016). Journal of Finance, Forthcoming, Available at SSRN:

Raj Chetty

Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

László Sándor

Office of Research ( email )

United States

Adam Szeidl (Contact Author)

Central European University ( email )

Nador u. 9.
Budapest H-1051
+36 1 327 3000 (Phone)
+36 1 327 3232 (Fax)

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