The effect of personal bankruptcy exemptions on investment in home equity
Corradin,Stefano Gropp,Reint Huizinga,Harry Laeven,L.A.H.
Corradin,Stefano
Gropp,Reint
Huizinga,Harry
Laeven,L.A.H.
Abstract
Homestead exemptions to personal bankruptcy allow households to retain their home equity up to a limit determined at the state level. Households that may experience bankruptcy thus have an incentive to bias their portfolios toward home equity. Using US household data for the period 1996–2006, we find that household demand for real estate is relatively high if the marginal investment in home equity is covered by the exemption. The home equity bias is more pronounced for younger and less healthy households that face more financial uncertainty and therefore have a higher ex ante probability of bankruptcy. These results suggest that homestead exemptions have an important bearing on the portfolio allocations of US households and the extent to which they insure against bad shocks.
Description
Date
2016-01
Journal Title
Journal ISSN
Volume Title
Publisher
Research Projects
Organizational Units
Journal Issue
Keywords
Homestead exemption, Personal bankruptcy, Portfolio allocation, Home ownership
Citation
Corradin, S, Gropp, R, Huizinga, H & Laeven, L A H 2016, 'The effect of personal bankruptcy exemptions on investment in home equity', Journal of Financial Intermediation, vol. 25, pp. 77-98. https://doi.org/10.1016/j.jfi.2015.04.001