A COUNTERFACTUAL TEST OF MATURE INVESTORS’ ASSET & DEBT MARKET PARTICIPATION: CHINA VS. THE US

Abstract

This study evaluates the rate of participation by elderly, American and Chinese households in six, different investment vehicles – home or primary residence, deposits, stocks, other real estate (i.e. apart from the home/primary residence), and proprietary enterprises including farms, according to data obtained from the 2008 Health and Retirement Study (HRS) and the China Health and Retirement Longitudinal Study (CHARLS). Probit regressions of asset and mortgage debt ownership are run on a series of relevant variables. Coefficients estimated for the sample of one country’s households are applied to the data for households in the second country, whereupon counterfactual rates of participation in each instrument are generated for the second country’s households. Differences between observed and predicted rates of participation are then decomposed into those arising from “coefficient” and “covariate effects,” corresponding to those from macroeconomic and household-specific factors. Consistent with hypothesized findings, macroeconomic factors are shown to prevail over household characteristics in explaining home and deposit ownership rate. The opposite result is discovered for stock and enterprise ownership, and implies that neither household traits nor economic climates are similar. Lack of diversification in Chinese household portfolios relative to US households, not only makes them more vulnerable to financial system shocks, it also reveals that the financial system is not as conducive to alternative forms of investment as it could be.