Saving Shocks, House Prices and Limited Access to Investment in Local Publicly Traded Firms

Abstract

In this thesis, we examine the relationship between stock market investment and real estate investment, with roots in the Home bias theory. We explore in detail, the connection between house price growth in states and areas defined by 3-digit zip-codes in the U.S. and the number of local publicly traded firms. Our thesis uses the Covid-19 pandemic induced saving shock and demonstrates how house prices in areas with a high number of local publicly traded firms tend to rise less compared to house prices in areas with a low number of local publicly traded firms. In our analysis, we utilise quarterly panel data for both states and areas defined by 3-digit zip-codes, and use a binary- and continuous treatment difference-in-differences model. First, we find a negative relationship between changes in house prices and the number of local publicly traded firms. These findings are in line with existing literature and supports our hypotheses. We also find that the saving shock during the Covid-19 pandemic led to a higher difference in house price growth between zip codes with a high/above median number of headquarters and the low/below headquartered ZIPs. There are mild pre-trends in the data, suggesting our findings may be influenced by pre-existing trends. However, on a general basis we observe a stronger effect after the Covid-19 shock than the pre-trends suggest which supports an increased effect in the savings shock period.