Lie Flat after Winning the Rat Race: Housing Wealth and Trading Activity
57 Pages Posted: 30 Jul 2022
Date Written: July 25, 2022
In this paper, we examine how housing wealth changes affect retail investors’ risk attitudes as reflected by their trading activities. Utilizing district mergers in Shanghai as random shocks to local housing prices, we show that investors financially benefitting from mergers traded less and their portfolios’ risk and return also decreased. In contrast, investors without local properties were not affected. Leveraging rich variations from a national sample, we further explore the heterogeneous effects of housing wealth changes and find that the effect is stronger when historical changes in housing prices were small and for investors who are middle-aged or male. Overall, our findings are consistent with reference-based preference and highlight the importance of understanding investors’ trading behavior in light of intertemporal and cross-sectional variations in personal wealth.
Keywords: excessive trading, reference-dependent preference, housing price, stock portfolio
JEL Classification: G41, G11, D15, G51
Suggested Citation: Suggested Citation