Analysis Of Factors Of Wealth Effect Of Chinese Residents’ Stock Assets

The stock market wealth effect refers to the phenomena that the appreciated or depreciated real wealth of stock holders resulting from stock price valuations may affect residential consumption. Under a “new normal” economy at the present time, we should take advantage of resource allocation effect of capital markets extensively, enhancing stock market wealth effect and promoting the sluggish consumption demand to bolster new economy growth.This paper summarizes related literature about wealth effect and explains the theoretical foundation of wealth effect thoroughly and constructs framework of the study. To begin with, the article makes a literature review about wealth effect. Then it describes the theory base of stock wealth effect,which includes absolute income hypothesis, relative income hypothesis, life cycle hypothesis, permanent income hypothesis accompanied with random-walk hypothesis in uncertain situation. In addition, this paper pays attention to behavioral finance as well in order to support theories of wealth effect by illustrating overconfidence, the expectations theory, wealth illusion and herd behaviors.The thesis also investigates exhaustive analysis on factors accounting for stock market wealth effect of Chinese residents’ stock assets in dimensions of residents’ income and wealth accumulation, assert allocation of households, stock market scale, market volatility, stock market participation, population structure, consumers’ expectation. It also gives elaborate explanations that how wealth effect works.The article makes a detailed description and empirical studies, which concludes that stock market value,consumer confidence and share price volatility exert significantly impact on stock assets wealth effect.Stock market value and consumer confidence have positive correlation with stock market wealth effect whereas stock markets volatility depresses the function of wealth effect. The wealth effect of Chinese residents’ stock assets is relatively small in magnitude. Consequently, it suggests that we should enhance the wealth effect of Chinese residents’ stock assets by the following aspects by expanding stock market scale,constructing a stable security market and raising consumer confidence, and similarly, to stimulate private consumptions.