Stock Market Participation with Formal versus Informal Housing Debt

37 Pages Posted: 30 Jan 2020 Last revised: 30 Sep 2020

See all articles by Jie Yang

Jie Yang

Capital University of Economics and Business and Stony Brook Univedrsity

Danling Jiang

College of Business, Stony Brook University

Keli Xiao

College of Business, Stony Brook University

Date Written: September 29, 2020

Abstract

We study whether mortgage debt obtained from licensed financial institutions and informal home loans obtained from private lending have differing impacts on stock ownership. Using the China Household Finance Survey data, we show that the two forms of borrowing have opposite effects on stock market participation. Mortgage debt is positively, while informal home loan is negatively, related to a household’s likelihood and degree of stock market participation. Further tests based on instrumental variables suggest a causal impact of mortgage debt and informal home loan on stock market participation. The positive role of mortgage debt is more pronounced among urban, highly educated, or financially literate households, while the negative role of the informal home loan is more visible among rural households and those with lower levels of education or financial literacy. High borrowing cost plays an important role in the negative impact of the informal home loan on household stock investing.

Keywords: Stock market participation; Risky asset share; Mortgage debt; Informal finance; Housing; Financial literacy

JEL Classification: D10, G11, G51

Suggested Citation

Yang, Jie and Jiang, Danling and Xiao, Keli, Stock Market Participation with Formal versus Informal Housing Debt (September 29, 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

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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