China's Stock Market Wealth Effect Research

With the rapid development of the stock market, that the stock market impact onmacroeconomic performance is increasingly significant, the correlation of stock pricevolatility and consumer demand is gradually enhanced. That stock price impact onconsumer demand is called as the wealth effect of stock market. This paper attemptsto establish a comprehensive analytical framework of wealth effect and find theconstraints of the Chinese stock market wealth effect through theoretical analysis andempirical research. This paper also hopes to make recommendations to improve thestock market wealth effect.This paper focuses on the relationship between stock price and direct consumerspending and the relationship between stock price and consumer confidence andanalyses the the correlation of stock price volatility and consumer demand by twoangles of the direct wealth effect and indirect wealth effect.First of all, the paper describes the mechanism of stock market wealth effect andthe stock market wealth effect theory, which laid the theoretical foundation forempirical research. And then, based on life-cycle theory and behavioral finance theory,this article was constructed two models which called as the direct wealth effect ofChinese stock market and indirect wealth effect of Chinese stock market. The paperget the conclusion that both direct wealth effect of and indirect wealth effect in Chinaare all weak by the measurement methods of unit root test, cointegration test andGranger causality test. Finally, combined with the specific situation of China’s stockmarket development, the article analyzes the reasons why stock market wealth effectis weak and put forward some suggestions about how to enhance the wealth effect ofChinese stock market.