Lie Flat after Winning the Rat Race: Housing Wealth and Trading Activity

57 Pages Posted: 30 Jul 2022

See all articles by Yiqing Lü

Yiqing Lü

New York University (NYU) - New York University (NYU), Shanghai

Bin Zhao

Thammasat Business School

Ning Zhu

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF); Tsinghua University - PBC School of Finance

Date Written: July 25, 2022

Abstract

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

Lü, Yiqing and Zhao, Bin and Zhu, Ning, Lie Flat after Winning the Rat Race: Housing Wealth and Trading Activity (July 25, 2022). Available at SSRN: https://ssrn.com/abstract=4171811 or http://dx.doi.org/10.2139/ssrn.4171811

Yiqing Lü

New York University (NYU) - New York University (NYU), Shanghai ( email )

1555 Century Ave
Pudong
Shanghai, Shanghai 200122
China

HOME PAGE: http://www.yiqinglue.com/

Bin Zhao (Contact Author)

Thammasat Business School ( email )

2 Prachan Road
Pra Nakorn
Bangkok, Bangkok 10200
Thailand

Ning Zhu

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF) ( email )

Shanghai Jiao Tong University
211 West Huaihai Road
Shanghai, 200030
China

Tsinghua University - PBC School of Finance

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

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