Study On The Relationship Between Household Financial Assets Selection And Development Of Financial Markets

As Chinese economy's prospect, household income is increasing. It desires investment in financial markets. So household portfolio of financial assets are more complicate. Financial markets are developing, which can supply more and better investing products for investors. Families can get profit and higher income from development of financial markets. Meanwhile, due to increasing investment of families, financial markets can grow more developed. Household financial assets selection has a mutual effect on development of financial markets. It arises some questions about the relationship between household financial assets selection and development of financial markets.By reviewing the domestic and foreign papers about this topic, this paper found that they focused on the decision factors of household financial assets selection and the relationship between the development of finance and economy increasing. There is less research on the relationship between household financial assets selection and development of financial markets. Therefore, this research is necessary and innovative. It is what this paper wants to study on.This paper discusses three aspects of the question about household financial assets selection and development of financial markets. 1. The relationship of household financial assets selection and rates of different financial markets return. 2. The relationship between total sum of household financial assets and development of financial markets. 3. The relationship between structure of household financial assets and development of financial markets. By doing research on these topics, the government could more reasonably guide families'consume and investment. While financial markets are growing and new investing products are being developed, families can get better financial service and higher income.First, the paper reviews the research on the relationship between household financial assets selection and development of financial markets. Then it finds out some questions which need be researched more deeply. Secondly, it theoretically analyses the relationship between household financial assets selection and development of financial markets, which empirical analysis can be based on. Thirdly, it uses the methods of estimated generalized least squares (EGLS) and cointegration test and Granger causality test in modern econometrics to do empirical analysis, and explains the outcome of empirical analysis. Last, it gets some conclusions and enlightenment. Because the data is not adequate, all the research is based on the measure of small samples. The distribution of statistics and critical value of tests should be adjusted. It is another creative point in this paper.Being based on research, this paper found that families will change the proportion of saving and stocks, according to rate of return in saving market and government bonds market of this period and next one. The amount change of household saving can affect saving market depth. The amount change of household stocks has an effect on stock market depth. The amount of household government bonds has a mutual effect on government bonds market depth. The amount of household financial assets also has a mutual effect on financial market depth. Beside that, the proportion of saving in household financial assets has an effect on saving market depth. The proportion of government bonds in household financial assets has a mutual effect on government bonds market depth. The proportion of stock in household financial assets has an effect on stock market depth.Empirical outcome shows that families are sensitive to the change of interest rate. But the sensitivity is not distinct. According to the change of interest rate, families will restructure their portfolio of financial assets. But the change of their portfolio of financial assets is not distinct. The reason may be the income level of our country's families. Household financial assets can be changed into investment in two ways. The first one is that saving can be changed into indirect investment by banks. And the second one is that funds can be changed into direct investment by stock market. If the efficiency of funds which are changed into investment is same in two markets, the flowing of funds in two markets has the same effect on investment, output and national income increase. However, if the efficiency is not same, government should make funds flow into more efficient market by adjusting interest rate, in order to promote economy. What's more, the interest rate is dropped in order to stimulate families'investment in stock market, which will promote the development of stock market. If stock market develops deeply, and stock price rises stably, companies'investment and output will increase, and the purpose of economy increase will be achieved. So our government will adjust monetary policy in order to promote economy increase. If the interest rate transmitting process works as the theory of Tobin's Q, this policy will have an effect.