Owner-Occupied Housing and Investment in Stocks: An Empirical Test

This paper analyzes the empirical link between housing investment and stockholding by testing implications of the model of Flavin and Yamashita [American Economic Review 92 (2002) 345–362]. Their model illustrates how the house-to-net-worth ratio influences a homeowner's portfolio composition. Regression estimates suggest that there is a strong relationship between housing investment and stockholding, and the house-to-net-worth ratio could explain certain heterogeneity in stockholding. Households with a high house-to-net-worth ratio hold a lower proportion in stocks. The results support the hypothesis that overinvestment in housing affects financial portfolio of homeowners.