The Wealth Effect Of Stock Market

Since2000, along with the rapid economic development，Chinese stock marketgrows rapidly and has become an integral part of modern financial markets. Stocksratio in the asset structure of urban residents increases year by year, so the function ofthe stock market is not limited to financing, optimizing resource allocation and so on,the effect of financial asset price volatility to the macroeconomic and individualresidents have become increasingly prominent. Studying the stock market wealtheffect is to reveal the effect of the stock wealth changes to spending of consumers.This paper takes research methods that combining the normative analysis andempirical analysis. In the section of normative analysis, this paper firstly expoundsthe wealth effect theory, the consumption function theory and behavioral financetheory and so on, on this basis, then analyzes the transmission mechanism of stockmarket wealth effect and discusses the factors affecting stock market wealth effect.In the section of empirical analysis, this paper adopts the quarterly data of the percapita disposable income, the per capita consumption expenditure of urban residentsand the Shanghai Composite Index, which from the first quarter of2000to the thirdquarter of2011, and develops a VAR econometric model based on the LC-PMconsumption function model to investigate whether there is stock market wealth effectin China. This paper takes the judgment of the bear market to replace the subjectivejudgment of stock market rose and fell, and then analyzes the asymmetry of stockmarket wealth effecThe main empirical conclusion is that there is a cointegration relationshipbetween consumption and income of urban residents and the stock market, namely,the stock wealth of residents weakly and positively affects the amount of itsconsumption. At the same time, our stock market wealth effect is more pronouncedasymmetry.According to the empirical conclusion, this paper analyzes the reasons ofconstraints of China’s stock market wealth effect. There are four reasons: Chinesestock market lacks of long-term investment value, listed companies are poor quality,corporate governance and corporate behavior are not standardized, the return ofinvestment is low. Second, the depth and breadth of the stock market is limited, so itis difficult to effectively develop the stock market wealth effect. Third, there is astrong sense of speculation in the stock market which makes a crowding-out effect onthe consumer, then restrains the stock market wealth effect. Fourth, Chinese stock market is in the phase of “sunrise and transition”, the nature of stage determines thatthe stock market wealth effect is weak. Combined with practice, this paper putsforward several suggestions to improve Chinese stock market wealth effect...