Utilizing positive quasi-random shocks to local housing prices in Shanghai, we show that stock investors who experienced significant returns from the real estate market traded less actively, took less risk, and spent less effort trading. We confirm the effect of housing price changes on investors' trading behavior in a national sample. Our findings suggest a substitution effect between the real estate and stock market and highlight the importance of understanding investors' trading behavior in light of intertemporal variations in other asset market.

Existing research finds that investors’ returns vary with their wealth and level of sophistication. We bring a new perspective from the supply side by showing that return heterogeneity can be magnified as assets offered by the market become more complex. Using detailed account-level data, we examine the trading of B funds—complex, structured products in the Chinese market. During a 3-year market cycle, the return gap between the naive and sophisticated is an order-of-magnitude greater when trading B funds than when trading simple, non-structured funds. In an event study, we confirm that this disparity is driven by differences in investors’ understanding of product complexity.