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Happiness and Stock-Market Participation: Empirical Evidence from China

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Abstract

Using the data from the China Household Finance Survey in 2011, we study the relation between happiness and stockholding. We find that a household’s propensity of investing in stocks or mutual funds, as well as household asset shares invested in stocks or mutual funds, is strongly associated with happiness. Moreover, empirical results suggest that among the three potential channels we propose, the association between happiness and stockholding is driven by trust (or social capital), rather than households’ risk preference or optimism level.

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Notes

  1. The cumulative variance of the first principal component is 83.11 %.

  2. The 2008 Sichuan earthquake, also known as the Wenchuan earthquake, was a deadly earthquake that measured at 8.0 Ms and 7.9 Mw and occurred at 02:28:01 PM China Standard Time at epicenter (06:28:01 UTC) on Monday, May 12, 2008 in the Sichuan province, killing 69,195 people, with 18,392 missing.

  3. Based on this “obey” question, we calculate the mean of answers given by households for each province.

  4. Housing with formal property (HFP) refers to commercial residency in China with both the “Building Ownership Certificates” and the “state-owned land use warrants,” which are built on the legal building sites and can be legally traded.

  5. Housing with informal property (HIP) refers to the cheap buildings built on collective land in China, particularly in rural areas. Farmers did not pay the land grant fee and other required fees for houses, and the property ownership certificates are not issued by the national housing agency, but rather by the Local Township or village government, which are legally invalid.

  6. The China Institute of City Competitiveness was founded in 1998 in Hong Kong; it endeavors to study the competitiveness of China’s cities and promote the image of China’s cities’ vigor, competitiveness, and sustained development as a whole. Since 2002, they have published China Cities of Competitiveness Ranking List annually. Based on the GN indicator system developed by CICC for China’s international influence, they recruit experts and scholars from home and abroad to conduct the study and assess cities’ competitiveness and finally make the selection among 289 Chinese cities.

  7. To calculate residual happiness, we first estimate the happiness regression using several determinants of happiness (shown in Table 3). Then we use the residual in second column of Table 3 as the instrumental variable of absolute happiness to test the key findings in the paper, which is similar to the method used in Krause (2013).

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Authors and Affiliations

  1. Business School, Central South University, Changsha, 410083, China

    Yulei Rao, Lixing Mei & Rui Zhu

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  1. Yulei Rao
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  2. Lixing Mei
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  3. Rui Zhu
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Correspondence to Lixing Mei.

Additional information

Foundation item: Project (71301169, 71372063) supported by the National Natural Science Foundation of China.

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Rao, Y., Mei, L. & Zhu, R. Happiness and Stock-Market Participation: Empirical Evidence from China. J Happiness Stud 17, 271–293 (2016). https://doi.org/10.1007/s10902-014-9594-4

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