Research On The Stock Market Wealth Effect In China

The wealth effect of stock market means that the fluctuation of the virtual wealth amount will influence the consumption, and even influence the economy. Boom of stock market impact on consumption as follows: First, increase shareholders wealth directly; Second, increase the consumer confidence, this will impact short-term marginal propensity to consume, and format the positive wealth effect. The decline of stock market will format a negative wealth effect.First this paper analysis the transmission mechanism of stock market wealth effect. Second this paper reviews the life cycle and permanent income hypothesis and analysis the stock market wealth effect from behavioral finance, psychology points systematically.In empirical part of this article, analyzes the mechanism of stock price's fluctuation which affects the decision-making on household consumption through influencing their asset choices and consumer confidence. The results show that the price of stock influencing consumer confidence and consumer spending appears more and more prominent, but transfer channel is not smooth. The author also makes empirical study for the impact of changes in stock prices and real estate prices on consumption, investigates long-term balance and short-term dynamic adjustment process among property price and the expenditure of consumption and income, studies the relation among the stock market, the real estate market with the national economy each other, using quarterly data from 2000 to 2007 through cointegration analysis and VAR models and impulse response function handling non-stationary time series. Currently, the main factor influencing the consumption demand in China is still dispensable income, so promoting the increase of income of households and stabilizing income expectation are the fundamental way to promote consumption in China. Compared with the real estate market, the stock market represent positive wealth effect, however, the imperfections of the stock market constraints the stock market wealth effect. At the end of this thesis, we try to explain why stock market wealth effect is so weak in China and make some policy recommendations.