Home Price Expectation And Risk Asset Behavior

For a household,Home is one of the most important assets and risk asset investment is among the most important ways against asset depreciation.Literature has pointed out that home price expectation will lead to real home asset investment.However,it's rarely known whether such expectation works on household risk asset behaviors.Given the importance of both two assets,this paper utilizes quarterly data from RAND American Life Panel to empirically test the formation of home price expectation and its impact on risk asset behavior.Finally,it results in two parts of conclusions:First,this paper distinguishes long-term and short-term home price expectations and analyzes their determinants.Focus is placed on past home and financial experience.The results show that there's a strong positive relationship between home price expectation and state home price growth,evaluation of local house market and respondent's financial situation change.Also it documents that this relationship differs between long-term and short-term expectations.Second,this paper investigates the effects of home price expectation on household risk asset behaviors from perspectives of both extensive and intensive margins.The results suggest that the higher the home price expectation is,the higher the likelihood to participate in the stock market either within or outside retirement saving accounts and the higher the share of financial assets a household put on the stock asset within retirement saving accounts.It testifies a hypothesis this paper proposes,that is,home price expectation represents a kind of imaginary wealth increase.Further,this paper uses another sample of non-homeowners and a substitution variable to exclude the possibility of an alternative channel,i.e.an omitted variable of expectation of macro-economic situation expectation.