The Wealth Effect Of The Residential Financial Asset Distribution Structure

Financial assets are intangible assets in form of value and rights to obtain physical assets. Residents of different income groups will select the type and quantity of financial assets to invest base on their own economic situation and risk tolerance, thus forming a residential financial asset distribution structure. The residential financial asset distribution has the ability to affect the distribution of income. The financial asset can change the absolute income of asset holders and affect the relative income level of the investors.This study focused on the wealth effect of the residential financial asset distribution structure and analyses how various types of financial assets distribution affect the income distribution. This study defines the concept of residential financial asset distribution structure and analyses its absolute wealth effect and the relative wealth effect. Then the study states that the residential financial asset distribution structure will be affected mainly by the income, the supply of financial assets, financial policy. By drawing on the income distribution theory, this paper introduces the portfolio yield and the Gini index as the tools to measure the absolute wealth effect and the relative wealth effect of residential financial asset distribution structure. The study gives the definition of the financial assets Gini index and describes its economic implications.In the empirical part of this thesis, the paper uses annul data of the consumer finance survey in United States and reviews the changes in the proportion of each income group of financial asset allocation review and compares the portfolio of different income groups. The study calculates out the portfolio yield and financial asset distribution for all income groups. Then the study uses the granger test model to test causal relationship between the financial assets Gini index and income distribution and works out that retirement pension, stocks, funds, life insurance cash value of the relative wealth effect have the significant effect on income distribution.In the end, the study proposes some relevant recommendations and target solution for China to improve the residents’ income and improve income distribution by referring the empirical analysis of the results of absolute wealth effect and the relative wealth effect.