Wealth Effect Of Chinese Stock Market

Wealth effect of stock market means that the fluctuation of the wealth amount will influence the consumption, and even influence the economy. The discussion on wealth effect of stock market began in America. From American experience, we can see that American wealth effect was marked and had two sides: The stock market has kept boom in a long run and promoted economy in 90s. In the past years the stock market slumped and handicapped economy. This paper systemically analyzes Chinese stock wealth effect and uses for reference American experience, then probes into the restriction factor of wealth effects of stock market through the cases of American stock market. Besides, it provides some countermeasures and suggestions on fully utilizing the wealth effect to stimulate consumption and boom economy. This paper principal used the Engle-Granger Co-integration Analysis and Error Correction Model(ECM), theoretical models, contrast analysis and academic analysis and describes the intrinsic mechanism and the external trend of wealth effect of stock market. According to research and analysis, there are two conclusions: 1.The theoretical analysis: Chinese stock market exists wealth effect, and stimulates consumption and booms economy. Meantime, wealth effect exists dissymmetric effect, influence of negative Wealth effect exceeds influence of positive Wealth effect. Clearly, when people probe into the function of stock market on stimulating consumption, we should not ignore negative Wealth effect. 2.The result by using Engle-Granger Co-integration Analysis and Error Correction Model(ECM): our country stock price index and Consumption reports weaker positive relativity whether long-term or short-term, this elucidation Chinese stock market also brings the certain wealth effect in its development of process, but the restriction factors of stock market such as small stock scale, restrict wealth effect. controllable income is the dominating factor influencing the consumption. Nowadays The purposes of utilizing the wealth effect to stimulate consumption and boom economy is restricted .As a result, we should refer to the experiences of foreign stock market, enlarge the stock scale, build a comparatively stable and prosperous security market and carrying on the policy of enriching the people. In addition, we should value two sides of wealth effect and decrease the influence of negative wealth effect. When stock market is boomed ,we should take precautions and when stock market is sluggish ,we should provide some countermeasures to recovery consumer'confidence.