Double Jeopardy: Households’ consumption responses to shocks in stock and mortgage markets

39 Pages Posted: 16 Nov 2022

See all articles by Linda Sandris Larsen

Linda Sandris Larsen

Copenhagen Business School

Ulf Nielsson

Copenhagen Business School

Jesper Rangvid

Copenhagen Business School

Rikke Sejer Nielsen

Copenhagen Business School

Date Written: November 4, 2022

Abstract

Households reduce consumption following negative shocks to their stock holdings. Households also lower consumption following exogenous increases in mortgage debt payments. But what is the impact of simultaneous adverse shocks in both markets, such as in the 2008 financial crisis? Using detailed Danish household data we find that the reduction in consumption doubles if households are highly exposed to both the stock and the mortgage market. We also find that the negative effects persist over time. It has a severe effect on consumption as households with a high-risk profile in the asset market also tend to have high exposure in the debt market. We discuss underlying reasons behind our results and their implications for macroprudential policies.

Keywords: Mortgage choice; micro data; risk attitudes; stock market participation; consumption effects; financial crisis.

JEL Classification: G11, G50

Suggested Citation

Larsen, Linda Sandris and Nielsson, Ulf and Rangvid, Jesper and Sejer Nielsen, Rikke, Double Jeopardy: Households’ consumption responses to shocks in stock and mortgage markets (November 4, 2022). Available at SSRN: https://ssrn.com/abstract=4267228 or http://dx.doi.org/10.2139/ssrn.4267228

Linda Sandris Larsen (Contact Author)

Copenhagen Business School ( email )

Solbjerg Plads 3, A5
Frederiksberg, 2000
Denmark

Ulf Nielsson

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

Jesper Rangvid

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
DENMARK

Rikke Sejer Nielsen

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

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