Formal versus Informal Mortgage Debt and Stock Market Participation
18 Pages Posted: 30 Jan 2020
Date Written: January 2, 2020
We study whether formal mortgage loans obtained from licensed financial institutions and informal mortgage obtained from private lending have differing impacts on stock ownership. Using the China Household Finance Survey data, we show that the two have opposite effects on stock investing. Formal mortgage debt is positively, while informal mortgage debt is negatively, associated with a household’s likelihood and degree of stock market participation. Further tests based on instrumental variables suggest a causal impact of mortgage debt on stock investing, with the role of formal mortgage debt pronounced in urban areas and that of informal mortgage debt visible in rural areas.
Keywords: Stock market participation, Risky asset share, Mortgage debt, Informal finance, Housing
JEL Classification: D10, G11, G51
Suggested Citation: Suggested Citation