Portfolio Flows, Household Rebalancing, and House Prices
We study how cross-border portfolio flows affect households’ portfolio rebalancing and house price expectations. Estimating both a difference-in-differences regression around a specific inflow episode and continuous treatment specifications on householdlevel data from the ECB’s Household Finance and Consumption Survey over the period 2009-2018, we find that portfolio flows induce households with larger ex-ante bond and equity shares to rebalance more strongly towards housing. The effect is not driven by higher pre-treatment access to credit or higher credit growth during the treatment period. The effects are stronger for wealthier and less risk-averse households. We also find that portfolio flows, unlike direct investments or credit flows, predict aggregate house prices and that portfolio rebalancing is associated with higher household-level house price expectations.