Utility Function Of Chinese Individual Investors

Under the traditional assumption of CRRA utility function,the fraction of risky assets allocated by individual investors is irrelevant with their wealth level.From the perspective of wealth level as one of the influencing factors of risky asset allocation,this study attempts to test the applicability of CRRA in China.Econometric analysis consists of cross-classification analysis based on micro data from Chinese Household Financial Survey(CHFS).The result shows strong pattern of decreasing relative risk aversion(DRRA)which means individual investors with higher wealth level tend to invest higher proportion of risky assets.Further,this paper uses the 2001-2016 national 31 provincial panel data for regression analysis.After controlling demographic characteristics,individual fixed effects,and time effects,the result shows a significant positive correlation.Specifically,the rate of change in wealth levels increased by 1%and risk asset allocation increased by 3.5%,which is in line with the results of the microdata.In view of the practical situation of Chinese individual investors participating in the financial market,this paper explains the DRRA empirical results from the perspective of participation costs.Using the data of the number of sales departments of Chinese security company in each province as a proxy variable for financial availability,the study found that financial availability significantly increases the proportion of risky assets.Specifically,for every additional sales department,the risk assets increased by approximately 0.004%.Considering the increase in risk asset allocation by individual investors in the province may result in additional department setting of security companies,leading to reverse causation problem,this paper uses the number of sales department that lags behind one period as an instrumental variable to identify the effects of financial availability on risky assets allocation.This article analyzes this result from three aspects:investment rights management,participation cost and product promotion.The selection of control variables in this paper and the results presented in the regression analysis are consistent with the existing research findings.For example,the age structure and education level factors in the demographic characteristics of the individual investor risk asset allocation ratio regression results are significant.