A Comparative Study In The Real Estate Market And The Stock Market At The Perspective Of Wealth Effect

Weak consumer demand has long been a bottleneck of China's economic growth. Expanding domestic demand has been regarded as the country's top priority since the global financial crisis severely impacted China's exports. In the Consumer Demand Function, the value of assets serves as a significant variable to affect the consumer expenditure, while real estate and shares constitute a great portion of the assets hold by residents. Thus a study of the effect on consumer expenditure brought about by the fluctuating prices of real estate and shares will be meaningful to the promotion of economic growth by regulating and controlling the capital market.The thesis, beginning with a summary and examination of previous theories and analyses, studies quantitatively the characteristics of the assets in real estate and stock markets and the transmitting mechanism of wealth effect between the two markets. Grounded upon the seasonal total consumption from the first season of 1999 to the second season of 2009, disposable income of urban residents, Shanghai Stock Index and seasonal averages of commercial house prices, the thesis applies Unit Root Test, Cointegration, Vector Error Correction and Impulse Responses Function based upon VAR model and concludes the wealth effect of China's real estate market is large, with its long-term Marginal Propensity of Consumption (MPC) reaching 0.50, and contributes to the economic growth while the wealth effect the stock market is fairly weak, of which the long-term Marginal Propensity of Consumption is 0.09.According to the above evidence, the thesis explains, based upon the characters of China's real estate and stock markets, the cause of the disparity and puts forward policy-making suggestions on the exertion of wealth effect.