Xiaomeng Lu, Donghui Shi, Jun Qian and Yan Gu Publish a Signed Article entitled Maintaining the Healthy Development of the Stock Market to Help Boost Household Consumption on China Capital Markets Research Network | Academics

Release time：2026-02-10    

On February 6^th 2026, Xiaomeng Lu, Associate Professor at FISF; Donghui Shi, Professor in Finance (Practical Track) at FISF and Academic Director of FEMBA and CUHK-FISF Joint DBA Program; Jun Qian, Executive Dean of FISF and Professor in Finance; and Yan Gu, Researcher at FISF and PhD in Applied Economics at Fudan University, published a signed article entitled Maintaining the Healthy Development of the Stock Market to Help Boost Household Consumption on China Capital Markets Research Network, focusing on China’s current economic situation and realities.

Xiaomeng Lu

Associate Professor in Finance at FISF

Donghui Shi

Professor in Finance (Practical Track) at FISF

Academic Director of FEMBA and CUHK-FISF Joint DBA Program

Jun Qian

Executive Dean of FISF

Professor in Finance

Yan Gu

Researcher at FISF

PhD in Applied Economics at Fudan University

The Central Economic Work Conference identified expanding domestic demand and boosting consumption as the top priority for economic work in 2026. According to the National Bureau of Statistics, the total retail sales of consumer goods nationwide grew by 3.7% year-on-year in 2025, up from 3.5% in 2024. However, consumption data for 2025 showed a clear “front-loaded and subsequent slowdown” trend, with year-on-year growth of just 0.9% in December and a month-on-month decline of 0.12%, indicating that boosting consumption still faces considerable challenges. The capital market, particularly the stock market, performed remarkably well in 2025, with major indices all posting double-digit gains. The STAR 50 and the ChiNext Index rose by over 35% and nearly 50%, respectively. Whether maintaining the current strong momentum of the stock market can contribute to stimulating household consumption growth is a question of considerable practical importance at the present time.

I. The theoretical and empirical effects of stock market performance on household consumption

The classic question of how stock market performance affects household consumption has generated extensive academic research both in China and abroad. Theoretical studies generally agree on a positive effect, operating through two main channels. The first is the wealth effect: rising stock markets increase household wealth, which in turn boosts consumption. The second is the confidence effect: rising stock markets strengthen household confidence and thus encourage consumption. However, empirical findings—particularly those based on macroeconomic data—vary considerably. A major reason is the presence of numerous “confounding effects” that are difficult to isolate effectively. A promising approach to address this issue is to examine major volatility cycles in the capital market.

Excluding the impact of the 2020 COVID-19 pandemic, both the U.S. stock market and China’s A-share market experienced two major volatility cycles over the past three decades. After controlling for potential interference from the real estate market during the same period, the peak and subsequent collapse of the U.S. internet bubble in 2000 serves as an optimal case study. The NASDAQ Composite Index rose from approximately 1,000 points in 1997 to over 5,000 points in 2000, only to fall back to around 1,000 points from 2000 to 2002. Over this period, U.S. per capita final consumption expenditure (in constant prices) grew by more than 1,000 dollars per annum from 1998 to 2002 before dropping sharply to about 500 dollars. This typical case demonstrates an evident positive correlation between macro-level stock market performance and household consumption during major volatility cycles.

Meanwhile, the increasingly rich collection of household-level and (stock) account-level data has provided more direct microeconomic evidence for investigating this issue. Drawing on a study on investors with fund holdings exceeding RMB 10,000 over the period from 2019 to 2020 on the Alipay platform, the research team recently found that an additional RMB 100 yuan in capital gains at the portfolio level is associated with an approximately RMB 1 yuan increase in consumption in the subsequent month, suggesting that growth in China’s capital market can significantly stimulate household consumption [1]. More importantly, for investment returns on assets that receive higher household attention, the monthly marginal propensity to consume (MPC) ranges from 1.6% to 2.4%, substantially higher than the approximately 1% for returns on other assets. In other words, assets that attract greater investor attention are more likely to convert paper gains into actual consumption. This result is broadly consistent with international micro-level studies, though it is lower than the estimated annualized stock wealth effects in the United States (approximately 3.2%) and Sweden (approximately 5%) [2][3]. However, as household investment in the stock market increases and overall consumption scenarios and service levels improve, it is expected that the marginal effect of stock market returns on consumption will further increase.

In summary, whether drawn from macro-level analysis of major volatility cycles or micro-level account-level data, boosting the capital market—particularly the returns on equity assets such as stocks—can significantly promote consumption growth.

II. Three issues requiring further attention

Although the conclusion that “boosting the stock market simulates consumption” has been validated at both the macro and micro levels, the following issues still warrant further attention.

First, the “Matthew Effect” in the stock market. Existing research indicates that high-net-worth investors tend to achieve significantly higher excess returns than low-net-worth investors, particularly during periods of sharp market volatility. According to a prior collaborative study conducted by the research team [4], over the 18 months of intense market volatility from July 2014 to December 2015, the wealthiest 0.5% of investors in the market profited from active trading, while 85% of ordinary investors incurred losses equivalent to 30% of their initial account value. Disparities in trading ability and access to information were the primary drivers of this divergence, and such disparities were amplified manifold during periods of severe market turbulence.

Second, the asymmetric impact of stock market gains versus losses on household consumption. Leveraging advantages in trading ability and information access, high-income individuals tend to capture higher returns during stock market fluctuations, particularly in highly volatile bubble cycles. High-income investors typically enter the market early during bubble periods and acquire higher gains; while during crash phases, they are more likely to exit early, thereby avoiding greater losses [4]. Consequently, compared to subsistence consumption related to food, clothing, housing and transportation, stock market gains tend to generate a greater increase in discretionary or enjoyment-oriented consumption [5]. During market downturns, consumption data may not show a significant decline due to the rigidity of subsistence consumption expenditures among low-income households [3]; however, the negative impact of stock market declines on household consumption confidence cannot be overlooked.

Third, the concurrent impact of real estate prices on household consumption is crucial. As equally important financial assets, the influence of the stock market on household consumption cannot be examined in isolation from the real estate market. Following the collapse of the stock market-driven internet bubble in 2000, the slowdown in U.S. consumption lasted only two years, and by 2003, growth in per capita final consumption expenditure had already exceeded USD 700 dollars—higher than in 1997, when the bubble was just beginning. In contrast, after the real estate-led financial crisis of 2008-2009, the U.S. consumption slump persisted for more than four years, with annual per capita final consumption expenditure growth averaging only about USD 300 dollars between 2010 and 2013. Compared with the relatively short-lived impact of stock market fluctuations on household consumption, the persistent effect of real estate market performance is much more pronounced. Furthermore, even after four consecutive years of correction in the real estate market, the share of real estate in Chinese urban households’ asset allocation today remains far higher than that of stocks. Hence, the real estate channel deserves equal attention.

III. Policy recommendations

Based on the research finding above, particularly the characteristics of how China's stock market affects consumption and the related challenges currently facing the development of the stock market, the research team proposes the following recommendations.

First, incentivize listed companies to maintain dividend payouts and share buybacks to boost households' real income. Compared with the increase in account asset values resulting from rising stock prices, dividends and share buybacks provide direct cash inflows for households, and their positive effect on consumption may be even more pronounced. Therefore, it is recommended that regulatory and fiscal policies be further optimized to encourage listed companies to increase dividend payouts and share buybacks, thereby raising households’ real income and, in turn, boosting consumption.

Second, ensure fair and healthy stock market growth while avoiding sharp short-term volatility. Due to disparities in trading ability and information access, short-term sharp fluctuations in the stock market tend to create and exacerbate the “Matthew Effect”, especially in China’s A-share market, which remains at a developing and maturing stage. Accordingly, it is essential to comprehensively strengthen corporate governance supervision of listed companies and improve the quality of listed companies. At the same time, trading fairness should be further enhanced, with a particular focus on cracking down on illegal activities such as insider trading and market manipulation.

Third, strengthen education and protection for small- and medium-sized investors. Given that small- and medium-sized investors are more likely to engage in irrational behaviors like “speculative trading in stocks with small capitalizations, recent listings, poor fundamentals, or recurring losses”, there is a clear need to enhance investor education, guidance, and protection. Resources such as exchange-based investor education centers should be fully utilized to continue improving investor education. In addition, major violations of securities laws should be prosecuted as criminal offenses, and mechanisms should be put in place for compensating small- and medium-sized investors for their losses.

References

[1] 陈国栋、鲁小萌、吕漪清、Michaela Pagel，2025，Not All Capital Gains are Consumed Equally，工作论文。

[1] Guodong Chen, Xiaoment Lu, Yiqing Lv and Michaela Pagel, 2025, Not All Capital Gains are Consumed Equally, working paper

[2] Chodorow-Reich, G., P. T. Nenov, and A. Simsek, 2021, Stock market wealth and the real economy: A local labor market approach. American Economic Review 111 (5),1613–1657.

[2] Chodorow-Reich, G., P. T. Nenov, and A. Simsek, 2021, Stock market wealth and the real economy: A local labor market approach, American Economic Review 111 (5),1613–1657.

[3] Di Maggio, M., A. Kermani, and K. Majlesi, 2020, Stock market returns and consumption. Journal of Finance 75 (6), 3175–3219.

[3] Di Maggio, M., A. Kermani, and K. Majlesi, 2020, Stock market returns and consumption, Journal of Finance 75 (6), 3175–3219.

[4] 安砾、楼栋、施东辉，2022，Wealth Redistribution in Bubbles and Crashes，Journal of Monetary Economics，126，134-153。

[4] Li An, Dong Lou, and Donghui Shi, 2022, Wealth Redistribution in Bubbles and Crashes, Journal of Monetary Economics, 126, 134-153.

[5] 国金证券，探究股市财富效应对消费的影响，2025年9月17日。

[5] Sinolink Securities, Exploring the Impact of Stock Market Wealth Effects on Consumption, September 17^th 2025.

China Capital Market Society (hereinafter referred to as the Society for short), founded in June 2025, is a national, academic, non-profit social organization under the supervision of the China Securities Regulatory Commission (CSRC).

Closely centered on its role as “a high-end thank tank platform for theoretical research, academic exchange, and policy advisory in the capital market”, the Society broadly unites and pools research capabilities from a wide range of stakeholders—including industry institutions, listed companies, universities, research institutes, and government agencies—to focus on major national strategies, cutting-edge capital market issues, and key regulatory concerns. By strengthening strategic, fundamental, and forward-looking research on the capital market, the Society aims to jointly promote high-quality development of the capital market and forge ahead on the path of financial development with Chinese characteristics.