Liquidity Constraint?Income Uncertainty And Household Asset Allocation

With the rapid development of economy in our country, ordinary resident's wealth level is also rising.Families'assets could be thought of surplus after consumption, research about families'asset allocation is good for optimizing our asset allocation and increasing the ordinary residents'capital income.In this context, it conducts the empirical research of resident's asset allocation behavior under influence of liquidity constraints and income uncertainty.The first part is the introduction, this part is a brief introduction of the background,purpose and meaning. It is often assume that a family's investment behavior is mainly related to the following factors:age, wealth, years of education of head of the household, access to financial services, and interest rates, etc. Different types of financial assets can meet the demand of different families' diversified investment choices. Stocks, funds, bonds have different risks and different investors have different risk preference. As diversification of financial assets, residents' choice becoming more and more complex. Therefore, the study of investment behavior of household financial assets is very necessary.The second part is a comprehensive summarize about the family asset allocation theory. First it introducts the related theory about liquidity constraints and income uncertainty. Then is the classical theory of family asset allocation. The optimal portfolio selection theory shows that wealth should be invested rationally in all risky assets according to certain proportion and risky assets portfolio selection of all investors should be the same. The difference between their portfolio lies solely in personal preference. But these conclusions that portfolio selection in the literature appear to conflict with the reality. Consider the unknown factors, it starts to introduce the liquidity constraint and income uncertainty. Researches of domestic and foreign scholars founded that liquidity constraints and income uncertainty could work together to decrease the investment of risk assets and increase the investment of safe assets.The third part starts the empirical research using the data from CHFS. First organizing data and choose variables as we need. Then setting up the basic model reference the classical equation of the Probit model and the Tobit model. Then put forward the asset allocation model under the restriction of liquidity and income and explain the path of asset allocation under constraints.It classified the assets that could be invested to four types:safe assets, low risk assets, stock assets and high risk assets. This paper recognized the liquidity constraint variable and income uncertainty variable through questionnaire about whether rejected by banks or whether income changed drastically, thus set the dummy variable. Considering reference literature, this paper added series of independent variables such as household income, household degree, urban resident those may affect family asset allocation behaviors. The empirical results is that liquidity constraints showed significant negative correlation with risk asset allocation. Furthermore, the analysis proved that other variables such as the school age of the head of household is significantly positive related with risk asset allocation ratio. Compared with the urban families, rural households invested less risky assets.The conclusion and policy recommendations is in the fourth part:(1) The age is significantly negatively related to whether restricted by liquidity and income uncertainty. The school age of residents is significantly positively related to the constraints. Liquidity constraints is negatively related to the investment of risk assets. Thus reducing the family liquidity constraints could optimize asset allocation and improve the domestic capital income in an effective way. (2)The school age of the head of household is positively related to the risk assets allocation ratio. Income uncertainty has little relation with the investment behavior of redidents.So according to the analysis of the model, this paper puts forward the following Suggestions:(1) to develop the financial market and relieve the liquidity constraints of household. Make the market work better to find a balance point that could please both supply sides and demand sides.It helps residents conduct effective investment options in financial markets through increasing residents' income; (2) Develop the system of education in our country and prolong average years of education of residents. At the same time it should improve the income level of domestic household and increase residents' consumption level. (3) It should be necessary that improve the Health care system and Pension system in our country.It should be necessary to develop the finance system in rural areas to miligate the liquidity constraints and income uncertainty of rural residents.