Formal versus Informal Mortgage Debt and Stock Market Participation

18 Pages Posted: 30 Jan 2020

See all articles by Jie Yang

Jie Yang

Capital University of Economics and Business and Stony Brook Univedrsity

Frank J. Fabozzi

EDHEC Business School

Danling Jiang

College of Business, Stony Brook University

Keli Xiao

College of Business, Stony Brook University

Date Written: January 2, 2020

Abstract

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

Yang, Jie and Fabozzi, Frank J. and Jiang, Danling and Xiao, Keli, Formal versus Informal Mortgage Debt and Stock Market Participation (January 2, 2020). Available at SSRN: https://ssrn.com/abstract=3516166 or http://dx.doi.org/10.2139/ssrn.3516166

Jie Yang

Capital University of Economics and Business and Stony Brook Univedrsity ( email )

Beijing
China

Frank J. Fabozzi

EDHEC Business School ( email )

France
215 598-8924 (Phone)

Danling Jiang (Contact Author)

College of Business, Stony Brook University ( email )

306 Harriman Hall
Stony Brook, NY 11794
United States

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

Keli Xiao

College of Business, Stony Brook University ( email )

306 Harriman Hall
Stony Brook, NY 11794
United States

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