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Household Portfolio Choice Before and After House Purchase

Department of Finance    2017-06-15

Household Portfolio Choice Before and After House Purchase

Speaker: Zhou Jie, Senior Economist in the Financial Stability Department, Bank of Canada

Host: Wang Songtao, Assistant Professor from Department of Finance, ACEM

Time: Jun 20, 2017, Tuesday, 14:30-16:00

Venue: S203 Xinshangyuan Building

 

Introduction:

We study the temporal patterns of household portfolio choice of liquid wealth over a 7-year period around house purchase, using unique administrative panel data from Denmark. We find that (i) households accumulate significantly more liquid wealth in a few years before a house purchase and convert around 61% of them to down payments when buying a house; (ii) the risky asset participation rate drops 2 percentage points – a 6.2% decline – at the year of house purchase; and (iii) conditional on participation, the risky asset share of liquid wealth decreases and reaches the lowest point 1 year before a house purchase, but it jumps immediately after. This suggests that of the three channels identified in the literature that could affect the conditional risky asset share of liquid wealth after a house purchase, the diversification benefits and the debt retirement channel dominate the concern of liquidity demand. Liquidity demand, however, does have a larger effect on the portfolio choice of poorer households after a house purchase.


Speaker Introduction: 

Zhou Jie is a Senior Economist in the Financial Stability Department at the Bank of Canada. His main research interests include household finance, housing, pensions and retirement saving. Prior to joining the Bank of Canada, Jie was an Assistant Professor at Nanyang Technological University in Singapore. He received his PhD in economics from the University of Western Ontario.



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