The Effect of Housing on Portfolio Choice

Chetty, Raj; Sándor, László; Szeidl, Ádám

doi:10.3386/w15998

Cited by 79 publications

(149 citation statements)

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“…As the classification of activity refers to the 2000 to 2007 period, we restrict attention to activity and participation at the end of 2007. We let the individual continuous characteristics enter linearly, and as an alternative we consider piecewise linear splines for them, as in, for example, Chetty, Sándor, and Szeidl (). The characteristics are chosen to be largely consistent with a structural life‐cycle model of portfolio choice, similar to the model that we develop in the next section.…”

Section: Empirical Analysismentioning

confidence: 99%

On the Asset Allocation of a Default Pension Fund

Dahlquist

Setty²,

Vestman

2018

The Journal of Finance

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We characterize the optimal default fund in a defined contribution (DC) pension plan. Using detailed data on individuals' holdings inside and outside the pension system, we find substantial heterogeneity within and between passive and active investors in terms of labor income, financial wealth, and stock market participation. We build a life‐cycle consumption‐savings model, with a DC pension account and an opt‐out/default choice, that produces realistic investor heterogeneity. Relative to a common age‐based allocation, implementing the optimal default asset allocation implies a welfare gain of 1.5% during retirement. Much of the gain is attainable with a simple rule of thumb.

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Section: Empirical Analysismentioning

confidence: 99%

On the Asset Allocation of a Default Pension Fund

Dahlquist

Setty²,

Vestman

2018

The Journal of Finance

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“…1 Some examples include Cocco (2005) and Chetty, Laszlo, and Szeidl (2017), who studied the effects on portfolio choice; Ortalo-Magne and Rady (2006) and Favilukis, Ludvigson, and Van Nieuwerburgh (2017), who studied the effects on equilibrium prices and transactions; Corbae and Quintin (2015), who focused on foreclosures in the housing bust; Gete and Reher (2016), who studied the effects on homeownership; and Keys, Piskorski, Seru, and Yao (2014), who explored the role of housing in transmitting monetary policy. Under certain conditions, we can think of the possibility set of mortgage originations as analogous to a production possibility frontier, with borrower characteristics as inputs and contract terms as outputs.…”

Section: Introductionmentioning

confidence: 99%

Measuring mortgage credit availability: A frontier estimation approach

Anenberg

Hizmo

Kung

et al. 2019

J of Applied Econometrics

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We construct a new measure of mortgage credit availability using a technique developed for production frontier estimation. The resulting "loan frontier" describes the maximum amount obtainable by a borrower of given characteristics. We estimate this frontier using mortgage originations data from 2001 to 2014. We find a substantial expansion of mortgage credit for all borrowers during the housing boom, not only for low-score or low-income borrowers. The subsequent contraction in credit was most pronounced for low-score borrowers. Using variation in the frontier across metropolitan areas over time, we show that borrowing constraints played an important role in the recent housing cycle.

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“…Brueckner () offers a formal model to study a household's mortgage‐size decision and shows that the size of mortgage depends on the rate of return on investment and the tax savings from the deductibility mortgage interest. A recent paper by Chetty, Sandor and Szeidl () examines the effects of housing on household portfolio choices and show that while an exogenous increase in mortgage debt leads to a decrease in the share of liquid wealth held in stocks, an exogenous increase in home equity raises stock ownership.…”

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confidence: 99%

How Does Mortgage Debt Affect Household Consumption? Micro Evidence from China

Fan

Yavaş

2018

Real Estate Economics

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Abstract:The high growth rate of mortgage debt in various emerging and developed economies has captured headlines following the financial crisis. In this paper, we investigate how mortgage debt impacts household consumption behavior and various components of household consumption. Utilizing a comprehensive household survey data from China, we show that households with a mortgage consume a higher portion of their income than households without a mortgage. This is in line with the argument that having a mortgage reduces the uncertainty that the household faces regarding how much to save each month in order to be able to own a house, and this reduced uncertainty leads to lower monthly savings for the purpose of buying a house. We also find that among households with a mortgage, those who spend a larger share of their income on mortgage payments spend less of their income on consumption, reflecting the crowding out effect of mortgage payments on household consumption. Furthermore, we show that a government policy of decreasing the maximum loan-to-value ratio has a significant impact on the consumption behavior of households. The current paper offers the first evidence of the impact of growing mortgage debt on the consumption behavior of households. Our results will have implications for government policies that encourage mortgage borrowing.JEL Classification: E21, D14, G21

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The Effect of Housing on Portfolio Choice

Cited by 79 publications

References 0 publications

On the Asset Allocation of a Default Pension Fund

On the Asset Allocation of a Default Pension Fund

Measuring mortgage credit availability: A frontier estimation approach

How Does Mortgage Debt Affect Household Consumption? Micro Evidence from China

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