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Title: Risk Attitude and Housing Wealth Effect
Authors: Liao, W.-C.
Zhao, D.
Sing, T.F. 
Keywords: Heckman correction model
Housing wealth effect
Pseudo panel data
Risk aversion
Issue Date: 2014
Citation: Liao, W.-C., Zhao, D., Sing, T.F. (2014). Risk Attitude and Housing Wealth Effect. Journal of Real Estate Finance and Economics 48 (3) : 467-491. ScholarBank@NUS Repository.
Abstract: This paper examines whether the housing wealth effect-the consumption change induced by house price appreciation is dependent upon households' attitudes toward risk. A simple theoretical model is introduced to highlight a negative relationship between the wealth effect and risk aversion. The paper empirically tests for this negative relationship, using data from the U.S. Consumer Expenditure Survey. The investigation involves two steps. In the first step, we make use of households' demographics and their risky and liquid asset holdings to estimate risk aversion. The Heckman correction model is applied to address the issue of limited stock market participation. For the second step, we construct pseudo panel data through grouping households by their birth years and their predicted values of risk aversion, and then, we estimate the responses of households' consumption changes to house price fluctuations by risk-attitude group. Consistent with the prediction of the theoretical model, the estimation results suggest a significant negative relationship between the housing wealth effect and households' risk attitudes. Households, who are less risk averse, experience greater consumption changes in response to house price appreciation. © 2013 Springer Science+Business Media New York.
Source Title: Journal of Real Estate Finance and Economics
ISSN: 08955638
DOI: 10.1007/s11146-013-9407-2
Appears in Collections:Staff Publications

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