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Houseprice Expectations and Household Risky Financial Asset Allocation——Theoretical Study and Empirical Evidence from CHFS
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TitleHouseprice Expectations and Household Risky Financial Asset Allocation——Theoretical Study and Empirical Evidence from CHFS  
AuthorXu Shuyi and Xu Yibin  
OrganizationLingnan College, Sun Yat-sen University ; Hanqing Advanced Institute of Economics and Finance, Renmin University of China.; 
Key WordsHousehold risky financial asset allocation; Substitution effect; Liquidity constraint effect; Tobit model 
AbstractIn the recent decades, Chinese households display limited participation in the stock market, while they are enthusiastic about real estate investment. This paper attempts to study this phenomenon theoretically and empirically. Based on the framework of adaptive expectations, using the method of multiphase dynamic optimization, this paper constructs a theoretical model that analyzes the effect of houseprice expectations on the household risky financial asset allocation including the substitution effect and liquidity constraint effect, and then puts forward the research hypothesis on this basis. Based on this, this paper uses the data of Chinese Household Financial Survey (CHFS) to empirically examine the research hypothesis. The results of the empirical analysis are as follows: First, the proportion of household risky financial asset investment is codetermined by the risk-adjusted expected return rates of different assets and the household investment decision makers’ own distinctive features, which is consistent with the empirical evidences. Second, there is a significant negative correlation between the expectations of rising houseprice and the household risky financial asset allocation, which is mainly realized by the substitution effect. And the higher houseprice is expected to rise, the stronger the substitution effect will be. While the liquidity constraint effect only plays its role when the family has more than one owned estates. Besides, such an influential mechanism is more explicable for urban families than rural families. Moreover, these conclusions are still robust when the definition of risky financial asset is changed or the future household asset allocation is introduced to the empirical equation. 
Serial NumberWP1327 
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