Theoretical And Empirical Analysis Of The Impacts Of China's Stock Market On Consumption

This first chapter begins with presenting the background of this research, that is, as China's stock market standardized gradually, the scale of China's stock markets are expanding, the number of listed companies and the stock accounts of households is increasing year by year, until now the proportion of shareholders of the total population over one-tenth. The global economic crisis caused by the U.S. financial crisis broke out in the year of 2008, China's stock market in 2006 and late 2008 also experienced unprecedented volatility, the economy entered a recession. In order to raise the funds for their own production company issued of shares. Investors trading stocks to investment or arbitrage. Consumption is the digestion of production and also the driving force of production, consumption is an important economic variable. Today,stock market and consumption are so important that analyze the impact of the stock market on consumption is necessary. In the study of related documents we find that a lot of research in the early literature agued a weak stock market wealth effect, the stock market does not affect on consumption or the impaction is small, but larger when the stock market became a lot of researches documented that stock market wealth effect is significant.In the second Chapter we analyzes the consumer behavior, because of the volatility of consumption, here we explan it into short-term and long-term respectively is necessary. In the analysis of consumption in the short run we adopt Keynesian consumption function and we get a very good simulation of consumption data from 2000 to 2007. In the analysis consumer behavior in long run, we present the life cycle theory, the permanent income theory and the random walk theory. People will attempt to smooth lifetime consumption to achieve in a lifetime utility maximization under the restrain of income, so here we think that the Keynesian consumption function, the life cycle permanent income theory and the theory all get a reasonable explanation. The empirical tests by using 1978-2007 annual data to the permanent income hypothesis shows that consumption can be interpreted by the sustained income and the temporary income and the marginal propensity to consume are 0.34 and 0.3 respectively. This provides theoretical and empirical foundation for the future analysis. In the study of the series of consumption itself, we find that consumption can be approximated as a non-stationary series with a first-order autoregressive.At the beginning of the third chapter we describe the stock market volatility, volatility in China's stock market has three characteristics that is a fat tail, aggregation fluctuations and asymmetric. There are some simulation models of the volatility in the stock market, here we introduced the ARCH model, GARCH model and TARCH model. In this paper we use weekly data on the 5th MA from March 2006 to March 2010 to test TARCH model, the estimates with a leverage coefficient of 0.306 are significant. Stock market impact consumption through the wealth effect, Although the study of the wealth effect do not make a consensus, in early researches, the stock market size was small so many of them conclude the wealth effect was not significant, with the development of the stock market many researches agues that the stock market wealth effect exists. Stock wealth effect can be explained through the life cycle theory and the permanent income theory, but because the wealth effects act on the stock holders group, so the total economy's stock market wealth effect will be restricted some factors such as the market size. In the final of the chapter we outline the factors constraining the stock market wealth effect.Chapter IV is the empirical analysis, in order to get the interaction between stock market fluctuations and consumption in different terms, here we use the VAR model to simulate and the impulse response function to analyze the variable impact of shocks on variables. Consumption–on is decided by the persistent income and the temporary income, so we use the consumption, the pre-income, the total stock market value as variables. Taking into account the total stock market value is a stock, while the other two are traffic, so we use the logarithm of these three variables in the VAR models. When people are making decisions pre-income is known, so in the VAR model we take the logarithm of pre-income as an exogenous variable. The model test results are significant with monthly data from January 1998 to January 2010. One percentage point growth of Stock market capitalization makes the largest direct positive impact occurs at the first month that 0.1 percentage point growth in consumption, the largest direct negative impact occurs at the second month that 0.12 percentage points lower in consumption. A positive impact on the total value of the stock market will promote consumption growing for 25 months, followed by a slight negative growth in consumption; finally the effect will disappear after 35 months. A positive impact on total stock market value will continue the positive effect to itself for 25 months and negative effect for 20 months, and then the effect disappears. Consumption positive shocks make a positive impact to itself for 8 months then a fluctuating effect and finally the effect disappears after 26 months. In order to investigate the scale factor in the stock market, this paper also use monthly data from January 1998 to January 2005 and from 2005 to January 2010 respectively to test the model. When the stock market is small, pre-revenue fluctuations causes consumption volatility is more evident, the impact of stock market volatility acts a positive influence on consumption, stock market volatility impact positively on itself. But when the stock market size is larger, the direct affect acted by the stock market fluctuations on consumption is more larger than that with a small market size, the impact of stock market volatility on consumption and on itself are all fluctuated effects and with longer duration.At last, we summarizes the conclusions of this paper, the fluctuations of value of the stock market and the consumption volatility and the pre-existence GDP volatility have a long-term equilibrium relationship, but the impact of China's stock market fluctuations on consumption volatility is still relatively weak. And stock market wealth effect in different size show different characteristics, Small the stock market is, the wealth effect is weak but to be the positive effect only, when the market size is larger, the wealth effect clearly appears in different periods with negative effect or a positive effect. Finally, we present some policy recommendations, the first is to strengthen the stock market regulator to prevent excessive fluctuations in the stock market, the second is to emphasize the importance of stimulating consumption to drive economic development, and the last recommendation is to take use of the stock market to promote the economy to increase continually.