Housing market investability and stock market participation

Abstract

We identify a causal crowding-out effect of housing market investment on stock market participation. Using a large sample of individual stock trading data and exploiting China's policy on restricting households from purchasing houses, we find a significant increase in the stock market participation among affected households compared to others. Our results are driven by the substitution channel between the housing and stock market: (1) the treatment policy indeed reduces households’ investment in housing, (2) the treatment effect is more pronounced with stricter housing purchase restrictions and higher propensity for real property investment, and (3) households’ stock turnover rate decreases.