Consumption, Preferences And Asset Returns

A fundamental concern among the financial economists is how the equilibrium prices of capital assets are determined. The financial products and financial system have become more and more complicated with the economic development, and this complexity has attracted close attention from the economists. These economists have realized that the former financial theories only take arbitrage, equilibrium, contracts, etc. into consideration and ignore the analyses of the economic agent, which makes it difficult for these financial theories to give a reasonable explanation of the real financial market behaviors. Because of the limitation of the former financial theories, more and more scholars begin to explain the complex financial phenomena from the analyses of the economic agents. The impact of the residents' intertemporal choice of consumption and investment and their preferences on the asset returns has become an important research subject. The consumption-based capital asset pricing theory has become the fundamental theoretical framework for the study of consumption and asset returns. Although the consumption-based capital asset pricing theory has been closely studied in America, Europe, Japan and the other countries and areas, this theory has been ignored by the economic scholars of China where the capital market is developing very fast.This paper aims to extend the study of the consumption equilibrium asset pricing theory to the Chinese capital market. Since Chinese reform in 1978, the residents' consumption level has increased year by year, and the consumption effect on the economic growth has been more and more obvious. The consumption fluctuation could cause the macroeconomic fluctuation, and the consumption has become an important fundamental economic element. Although the Chinese residents' consumption growth is relatively stable, the residents will adjust their intertemporal choice of consumption and investment under the influence of the external environment, emotion, preferences and so on, and this will result in the consumption fluctuation, which will have an influence on the financial market. Then, could Chinese residents' consumption fluctuation risk be reflected in the asset returns? What effects will Chinese residents' habit preferences have on the relationship between the consumption and asset returns? Under the institutional background of partition of town and village and income disparity, what effects will Chinese residents' consumption have on the asset returns? These are just the aims of this paper. This paper will apply the consumption capital asset pricing theory to Chinese capital market, and make empirical analyses of the effects of Chinese residents' consumption on the asset returns on the basis of the Chinese capital market. It will give help to understand the pricing mechanism of Chinese financial assets by studying the relationship between Chinese residents' consumption and asset returns, and this is undoubtedly important for the healthy development of Chinese capital market.This paper makes researches with the methods of theoretical analyses and empirical analyses. In order to have robust estimation results, this paper constructs several sets of data according to different consumption measure standards and time...