Abstract
We empirically investigate how households reallocate their funds in response to an austere housing-market cooling intervention—the Housing Purchase Restriction (HPR) policy in China—that depresses housing demand. Based on a proprietary dataset on individual stock accounts from a large stock brokerage firm, we find a significant increase in new stock accounts opening and capital inflow to the stock market by the affected households immediately after the HPR implementation, which absorbs 54% of the capital that would have flowed into the housing market. The affected investors more likely steer capital toward investment in the listed real estate developers, a pattern that is prevalent across investor demographics and particularly strong in HPR cities with a higher pre-policy house price growth. The capital reallocation results in a significant trading loss for affected investors. We also find listed real estate developers, even the capital-constrained and more HPR-exposed firms, do not reduce corporate investment and employment despite the negative demand outlook.
Published Version
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