In the context of attempts to ensure ecologically sustainable development in China, there has been an increase in “green finance” and “green loan” policies in recent years to promote the devotion of capital resources to sustainable development. Academic research in this area has grown tremendously. However, theories and models of green finance and policy analysis based on them remain inadequate. This study develops a theoretical and quantitative model to analyze Chinas incentive policies for green loans and applies this model to identify the likely effects of such policies. This will provide a prototype for modeling green financial policies in academia and help the government design such policies in the real world.
In China, “green financial policy” normally means governmental and regulatory measures that promote financial services that support environmental improvement, climate change mitigation and adoption, and more efficient resource utilization. More narrowly, it refers to financial policy tools that incentivize green financing activities, such as interest subsidies, central bank relending, government guarantees, lowered risk weights, and reduced capital requirements for green loans (i.e. incentive policies). These policy tools have been proposed or implemented in the wake of the release of the Integrated Reform Plan for Promoting Ecological Progress in 2015 and the Guidelines for Establishing the Green Financial System in 2016 by the central government.
While green financial policy has developed rapidly in practice, relevant academic research lags behind. Research on green financial policy has mostly involved qualitative policy recommendations. Quantitative research on green finance has begun to accumulate in recent years; however, few studies have focused on the economic and environmental effects of green financial policy. It is unknown whether this kind of policy is effective and what it will bring to the macro-economy.
Given this background, this research aims to provide a theoretical model suitable for the quantitative analysis of incentive policies for green loans and to theoretically show their economic and environmental effects. The specific policy tools we study include interest subsidies, directional reduction for reserve ratio requirements, and central bank relending.
To do this, we build a Dynamic Stochastic General Equilibrium (DSGE) model based on the Real Business Cycle (RBC) framework. The model makes two major extensions to the RBC framework. (1) The banking sector conducting green lending is added. The firm sector must use loans as “working capital” to pay for all costs. The bank provides green and traditional loans to different firms. The household sector can deposit savings to the bank. (2) The firm sector is divided into two sub-sectors: green and other firms. The pollution from the production process is introduced and the green firms pollutes less than other firms. Green firms are financed by green loans, while other firms are financed by traditional loans. These two extensions allow us to analyze financing activities and to distinguish green loans from traditional loans. Incentive policies for green loans can then be included after introducing the central bank and government sectors. Parametric data are calibrated from China.
According to this model, we find the following: (1) All three policies (interest subsidies, directional reduction for reserve ratio requirements, and central bank relending) can increase the amount of green loans. Policy strength has a certain order. This shows the direct effects of such policies. (2) Temporary policy changes (incentives) can increase the output and employment of green firms while decreasing the output and employment of other firms. The total output, employment and pollution will also be negatively affected slightly, as will pollution emission. The positive impacts of policy are more significant than the negative impacts. This shows the indirect effects of such policies, including benefits and costs, for the entire economy and environment. (3) If the three policies are set endogenously in the economy as emission-pegged rules, they can also enhance the share of green-related variables in the economy. However, only when they reach a certain level of strength can the pegged policies bring about a green transformation of the economy in the face of productivity shock.
The conclusion is that interest subsidies, directional reduction of reserve ratio requirements, and central bank relending are all effective ways of incentivizing green loans and have positive effects on the greening of the economy. The policy cost is not high. This implies that increased investment in green financial policy is desirable.

The coexistence of a high savings rate and high leverage ratio has been a typical feature of China's economy in recent years. The high savings rate is also considered one of the main reasons for China's high leverage. Therefore, whether deleveraging can be achieved by reducing the savings rate has become a widely discussed issue. Unfortunately, the research has not definitively answered this question. Moreover, in reality, the following two phenomena do not support a positive correlation between the savings rate and leverage ratio. First, a high savings rate is a long-standing phenomenon in China's economy, but high leverage is a problem that only emerged after the 2008 global financial crisis. Second, at the international level, countries with low savings and high leverage are more common than countries with high savings and high leverage.
Accordingly, this paper conducts a more systematic analysis of the relationship between savings rate and leverage ratio by means of theoretical models and empirical tests. In terms of theoretical models, this paper constructs a dynamic general equilibrium model based on the Samuelson-Diamond-Tirole OLG framework with financing constraints, including households and enterprises. The model depicts the two main effects of savings rate on leverage. For example, a decline in the savings rate will enable the household sector to allocate more funds to in consumption and financial assets, which is reflected in the increase in leverage incentives in the household sector; at the same time, it will reduce the size of loanable funds available to the corporate sector, which will affect the lending and investment decisions of that sector. The numerical simulation results show that the relationship between the savings rate and leverage ratio is not monotonic but U-shaped.
Furthermore, based on the theoretical model, this paper finds that in the high leverage state, the lower savings rate means a greater probability of financial crisis in the economy. In contrast, higher savings rates usually correspond to the highly leveraged state of the corporate sector, often leading to inefficient credit allocation in the corporate sector. Although this problem will bring about the loss of economic efficiency, it is less likely to trigger a financial crisis.
In terms of empirical tests, this paper takes 41 representative economies commonly used by the Bank for International Settlements as a sample. Based on panel data from 1966 to 2017, this paper empirically analyzes the relationship between savings rate and leverage ratio. Both a static panel fixed-effect regression model and a dynamic panel Arellano-Bond system estimation method show a robust U-shaped relationship between savings rate and leverage ratio. The conclusion is consistent with the numerical simulation results of the theoretical model. Based on the financial crisis data of major economies from 1966 to 2010 and using Probit and Logit models, this paper finds that a higher savings rate under high leverage can effectively reduce the probability of a financial crisis, while a decline in the savings rate increases the probability of a financial crisis, which agrees with the conclusions reached by the theoretical model.
In addition to the preceding results, it is expected that changes in China's savings rate will have two effects. First, because the savings rate and leverage ratio show a U-shaped relationship with an inflection point at around 39%, reducing China's savings rate (47% in 2017) will help to reduce leverage. However, further calculations show that this leverage reduction effect is more limited. Even if China's savings rate is reduced to the inflection point, the leverage ratio can only drop by about 4 percentage points. Second, the critical value of the impact of the savings rate on the probability of a financial crisis under high leverage is around 48%; that is, when the savings rate is lower than 48%, it will not be enough to offset the risk of financial crisis caused by the increase in leverage. The decline in China's savings rate in the future will exacerbate financial risks and increase the likelihood of a financial crisis.
Consequently, this paper argues that China cannot reduce the leverage ratio by reducing the savings rate. Instead, it needs to address the decline in the savings rate in recent years. The research in this paper will not only help deepen public understanding of China's high leverage problem and how to deal with it but will also serve as a reference for the formulation of macro policy in China's structural deleveraging process.

Many of the financial crises that have occurred in recent decades arose from excess credit expansion induced by a rapid, unsustainable growth of house prices. Such an excess credit expansion threatens the stability of the financial system. China, as the world's second largest economy, has been experiencing an unprecedented housing boom accompanied by rapid credit expansion in the wake of the 1998 housing commercialization reform. It is thus a matter of public concern, and of great interest to authorities, how to maintain financial stability by policy interventions. In recent years, there has been a growing consensus among scholars that in addition to monetary instruments, macroprudential instruments might be good alternative candidates for containing the financial imbalances induced by large swings in house prices. However, the design of an appropriate macroprudential tool and the desirable degree of intervention remain matters of academic controversy.
Using Chinese data, we develop and estimate a dynamic stochastic general equilibrium (DSGE) model that allows for financial frictions tied to households and financial intermediaries. The model is used to address two sets of issues associated with the Chinese economy. First, we investigate the extent to which the model can account for empirical evidence that house price fluctuations affect investment, loans, and bank leverage ratio over the business cycle. In particular, a positive shock to house prices directly drives up house prices and housing investment, leading to an increase in loans. It then causes a rise in the interest spread and subsequently encourages banks to raise their leverage ratio. In the presence of financial frictions, the effects of housing demand shocks are amplified and propagated over time. In this regard, a rapid growth of house prices may undermine financial stability. Second, we conduct counter-cyclical experiments with macroprudential instruments (loan-to-value ratio and capital adequacy ratio) to examine the extent to which they can stabilize the housing market, the financial system, and the macroeconomy as financial imbalances increase.
The contributions of this paper are threefold. First, we build a theoretical model with a rigorous micro-foundation to study the interaction between the financial and housing markets over the business cycle during the housing boom in China. Second, the baseline model with financial frictions is capable of capturing the mechanism by which fluctuations in house prices initiated by an exogenous shock influence the bank's balance sheet and the macroeconomy. Third, it provides a better understanding of the effectiveness of macroprudential tools in alleviating the instability of the financial and housing market under different shocks.
The main results of this paper are as follows. With the estimated parameters, the model successfully accounts for the joint behaviors of house prices, investment, loans, and bank leverage ratio observed in the data. More importantly, it captures the mechanism by which fluctuations in house prices affect the bank's balance sheet and the macroeconomy as a whole in response to exogenous shocks to house prices. Moreover, we find that a countercyclical loan-to-value (LTV) requirement that directly responds to the credit gap and house price gap can effectively stabilize the financial and housing markets and improve social welfare in response to a housing preference shock, but it does poorly in response to productivity and time preference shocks. Lastly, a countercyclical capital adequacy requirement that directly responds to the credit gap and house price gap performs well in stabilizing the economy and improving social welfare when productivity and time preference shocks impinge on the economy.
This paper not only provides a better understanding of the link between house price fluctuations and financial stability but also reveals the importance of macroprudential policies in maintaining the stability of the financial and housing markets. Our results suggest that macroprudential authorities should distinguish the sources of house price fluctuations when designing and implementing policies. Failure to do so may lead to enormous losses of welfare to society and the economy.

Over the past decades, countries around the world have adjusted their domestic population policies to cope with the crisis of low fertility. One especially important aspects of such policies is extended maternity leave. China has repeatedly changed its domestic population policies in recent years. The gradual abolishment of the one-child policy, which was in place for almost 30 years, is vital for both increasing the quantity of the workforce and ensuring its greater quality (i.e. a skilled workforce). However, China's current population policy is quantity-oriented. So far, there has been little research on the effect of adjustments to maternity leave on agents' behavior, which makes formulating and implementing population policies and evaluating their short-and long-term socio-economic effects more difficult. A direct consequence is that the relaxation of the one-child policy has not brought about the extension of maternity leave or reduced individual agents' fertility costs. Because it affects the speed and quality of future generations' human capital accumulation, a well-developed maternity leave policy will have a major influence on the formation and adjustment of the skill structure of the Chinese labor market and will lead to sustained economic development.
Our paper utilizes data from the Population Census of 2005 and the major revisions in China maternity leave policies in September 1988, Rules on the Labor Protection of Female Employees,which lengthened maternity leave from 56 to 90 days. This extension could increase the time allocation and economic resources of female workers in both the family and the labor market, and could improve the human capital accumulation of the next generation. We use RD-DID as our main technique to evaluate these effects to overcome potential heterogeneity in individuals around cut-off points. The results show that prolonged maternity leave policies promote the human capital accumulation of the next generation, even in the absence of other reforms. The positive effects are larger for those who are better off (in terms of economic resources), taking heterogeneity into consideration. The underlying mechanism is due to direct formal care rather than better health or increased family resources. Prolonged paid maternity leave policies therefore have positive effects on human capital accumulation in China. The main focuses of adjusting population policies should be the potential effects of extending paid maternity leave and changing the focus of population expansion from quantity-oriented to quality-oriented policies.
In our conclusion, we make the following suggestions. (1) Paternity leave should be promoted along with extended maternity leave. By improving the family's ability to rationally allocate leave time, this change will strengthen the positive effect of parental leave on intergenerational human capital accumulation and weaken the negative effect on female employment. (2) Given the increased labor costs arising from paid maternity leave, formulating an unpaid maternity leave policy is of importance for complementing existing policies based on other countries' experiences. Not only it will partly reduce the limits on female workers' ability to stay home so that they can make a better trade-off between family and career, but it will also alleviate discrimination in the recruitment of female employees, which will improve gender equality.
The main contribution of our research is to identify the effect of maternity leave adjustment on the next generation's human capital accumulation. The difficulty of our research is in that both birth and maternity leave behavior are endogenously decided by individual families, who are influenced by many unobservable factors. This paper utilizes the major revisions in China maternity leave policies in September 1988, which extended maternity leave from 56 to 90 days. Because of the short time interval between the policy's promulgation and implementation, this shock allows us to scientifically assess the relative effects of this adjustment to Chinese maternity leave policy and to determine its long-term effect on population structure.

With the continuous opening up and integration of the global financial market, the Chinese gold market frequently interacts with the external market, and its internal linkage relationship also becomes extremely diverse and complex. The price linkage between gold markets reflects the transmission process of information and risk between different markets. The price of gold usually fluctuates due to the interference of external factors, but whether the linkage relationship between markets will change accordingly is not immediately obvious. The effectiveness of the market function and the stable relationship of gold markets are the prerequisites for investors to hedge and diversify their portfolios, and they are also related to the stability of the entire financial market.
Gold futures and spot markets have great differences in market structure and trading mechanisms, so distinguishing the two types of markets is helpful for understanding their linkage mechanism and market characteristics. This paper focuses on the inner side of the gold market, taking the Chinese gold market as the main reference, and choosing the United States, Britain, Switzerland, Dubai, Thailand, and Japan as representatives of the international gold spot and futures market. The closing prices of the main gold contracts of the major exchanges are taken here from the financial terminal of Data Stream. Based on this data sample, the dynamic correlation and volatility spillover effects between the major gold markets in China and foreign countries from 2011 to 2018 are comprehensively analyzed. Crude oil prices, the MSCI index, and the US dollar index are introduced as external shocks to test the impact of different types of market factors on the linkage between the gold spot and futures market and to explore the stability of price linkage between the Chinese and foreign gold markets.
The results show that there is a positive correlation between the Chinese gold market and the major global gold spot and futures markets as a whole, and there is a one-way or two-way volatility spillover effect between them. The significant volatility spillover effect between Chinese and foreign markets indicates that there are channels of information and risk transmission within the gold market, but the dynamic correlation between the markets does not determine the direction of risk transmission. Under general market conditions, external shocks have not significantly changed the linkage relationship between China and the major global gold markets, indicating that the price linkage within the gold market has a strong stability. However, it is worth noting that in extreme market conditions, external factors will have a significant asymmetric impact on the linkage between Chinese and foreign gold markets. These conclusions clarify the basic relationship between markets and provide useful theoretical reference for cross-market cooperation. At the same time, the different linkage mechanisms between spot and futures markets provide a clearer market model for market participants. Investors can use relevant conclusions to hedge and invest effectively.
This paper makes three main contributions. First, it addresses the deficiencies of the research on the internal linkage of the gold market. Most of the literature focuses on the linkage between the gold market and other financial markets, but few studies have focused on the gold market and classified it according to futures and spot markets. This paper makes a comprehensive theoretical and empirical study of the internal correlation of the gold market. Second, this paper tests the stable price relationship between Chinese and foreign gold market from the perspective of external shocks, to explain why the market function of gold can be effectively played; this is a perspective different from that of previous studies. When external factors interfere with gold prices, such shocks do not significantly affect the correlation between gold markets, so investors can still use the global gold market for effective hedging without unduly worrying about the internal risks of the gold market. Finally, this paper chooses a sample of the futures and spot contracts of eight major global gold markets in the post-financial crisis era. The sample interval covers a variety of market conditions, and the conclusions are subjected to a series of robustness tests to make them more comprehensive and reliable.

Service intermediaries are increasingly influencing manufacturing firms. As an important part of the service industry, financial services provide financing channels, insurance systems, securitization channels, and import or export financial services to manufacturers. However, the internationalization of China's financial market is slow to develop. Since the formal announcement of the Protocol on the Accession of the People's Republic of China in 2001, China's foreign investment regulation of banking, insurance, securities, and other financial services have gradually liberalized. This study focuses mainly on the dynamic adjustment of foreign investment policy in the financial services industry. It theoretically and empirically examines the impact of the dynamic change in foreign investment policy in the financial services industry on the export behavior of downstream firms, and conducts a heterogeneous analysis from the perspective of policy sensitivity. It also analyzes the related mechanisms.
Theoretically, at first, foreign investment deregulation of the financial services industry causes new financial service providers to enter the market. Downstream firms can use a wider range of financial services to improve the efficiency of export production and operation (Anrold et al., 2016). Second, the market competition effect brought about by the opening of financial services forces financial services providers to improve their service efficiency and quality, which can help reduce firm export risk, accelerate the export business cycle, and reduce the fixed and variable export costs (Hummels, 2013). In addition, the improvement in the efficiency and quality of financial services can improve firm output efficiency and thus increase export revenue. Finally, the decreasing service prices caused by deregulation (Fernande and Paunov, 2012) may reduce the variable export costs and thus increase export revenue. The initial adjustment in foreign investment policy in the financial services sector therefore promotes downstream firm exports. Moreover, we reveal that the heterogeneity in enterprise management efficiency and the characteristics of product factor input reflect the sensitivity of firms to adjustments in foreign investment policy in the financial services. The export performance of highly management-efficient firms, non-technology-intensive firms, and capital-intensive product firms is more responsive to foreign investment deregulation in the financial services.
Based on the theoretical analysis, this study uses information from the Chinese Catalogue for the Guidance of Industries for Foreign Investment to construct an index of foreign investment regulation in China's financial services industry from 1998 to 2007, and measures the dynamic changes in foreign investment policy in China's financial services industry for the first time. Next, we use the input-output table to measure the impact of liberalizing upstream financial services on downstream export firms and then match it to China's NBS database for empirical analysis. The results show that the deregulation of foreign investment in the financial services industry helps to improve the intensive and extensive margins of manufacturing firm exports. Second, highly management-efficient firms and firms which produce non-technology intensive or capital-intensive products are more sensitive to foreign investment deregulation in the financial services industry. Finally, this study verifies the intermediary mechanism of adjusting foreign investment policy in the financial services industry through the channel of firm financing.
This study has important policy implications. First, to contribute to the sustainable development of China's export trade, efforts should be made to promote the opening up of financial services related to manufacturing production and exports. At the same time, the elimination of administrative monopolies and the introduction of market mechanisms in the financial services should be accelerated to deepen the opening-up and promotion of policy effects. Finally, we should pay attention to the different sensitivities of downstream manufacturers to adjustments in foreign investment policy in the financial services, to the construction of learning and management capabilities of firms, and to the acquisition of financial services by non-technology-intensive and capital-intensive export firms. In this way, manufacturing firms can obtain more positive effects on export growth from the deregulation of the financial services industry.

As an important part of macroprudential supervision, countercyclical capital requirements play a primary role in alleviating systemic risks caused by excessive bank credit and promoting financial stability. Although countercyclical capital regulation has been proposed for more than eight years, China has not yet promulgated the specific regulatory rules and requirements. A key reason is the lack of both a unified specific method and time-tested indicators as a reference to establish the anchoring indicator, which is an important basis for calculating, dynamically adjusting, and releasing countercyclical capital. Should the generalized “credit/GDP” guide recommended by the Basel Committee be adopted？ Is it in line with the risk characteristics of the Chinese banking industry？ Are there any other indicators and elements of particular concern？ What is the mechanism for selecting indicators？ Discussing these issues will enrich the discussion surrounding countercyclical capital supervision and promote policy implementation in China.
This paper first reviews the countercyclical capital regulation guidance proposed by the Basel Committee and its latest implementation in various countries, and chooses 15 candidates widely used in practice, together with three classes of anchor variables proposed by the Bank for International Settlements (Drehmann et al., 2011). Considering the risk characteristics of the Chinese banking industry and data accessibility, six credit variables are added to reflect the actual loan structure in China. Altogether, these 21 candidates provide 84 anchor variables through four forms of transformation and finally yield 105 candidate indicators.
The candidate indicators are then screened and verified. First, this paper replaces “systemic financial risk/financial crisis,” which has not happened in China, with the “downward stage” of the middle-term financial cycle. Based on the latest literature, the first quarter of 2011 is set as the starting point of the “downward stage”, which serves as a reference time node for operating the countercyclical regulation. Second, by making use of the method in Drehmann and Juselius (2014), this paper draws the Receiver Operating Characteristic (ROC) curve with the data at the time of the first quarter of 2010 and respectively calculates the Area Under the Curve (AUC) value, which measures the candidate indicators' ability to predict the outbreak of systemic financial risks one year later. Third, this paper ranks each indicator by examining whether it meets the criteria of static timeliness, dynamic stability, economic interpretability, and data accessibility when used for early warning of systemic risk, so as to complete the identification process of anchor indicators. Finally, this paper carries out robustness tests by determining the starting time nodes of the “downward stage” in three financial short cycles and checking whether the ROC curve method used obtains consistent indicators in different contexts in a financial downturn period.
The empirical results show that specific industry indicators such as the trend gap of real estate price, and specific categories of credit indicators, such as the trend gap of real estate loan, the trend gap of personal housing mortgage, and the trend gap of consumer credit, can track potential risks from multiple dimensions, and thus can be used as anchor indicators for countercyclical capital supervision. In addition, the combined anchor index has a higher early warning ability and stability than single anchor indicators. These conclusions improve the precision of optimal anchor indicators to reflect systemic risk by focusing on classified credit and industry credit instead of general credit. By exploring anchor indicators and improving the early warning effect of linked variables, this paper provides practical guidelines for decision making and promoting the operation of countercyclical capital regulation in China. Its findings may also provide inspiration for other countries or regions.
This paper contributes to the literature in several ways. First, the ROC curve method is used for the first time to identify the pros and cons of China's countercyclical anchor indicators and ensure the reliability of the conclusions. Second, the candidate indicators have been comprehensively arranged and scientifically transformed, which makes it possible to select the most effective anchor indicators. Third, the period from 2004 through 2018 contains relatively complete economic and financial cycles, and thus reflects rich information and offers a basis for empirical research on countercyclical policies. Finally, this paper links countercyclical capital regulation in China to personal housing credit and consumer credit as anchor indicators, which suggests avenues for viable countercyclical capital regulation mechanisms in China.

Many countries, including China, have adopted fiscal policies such as tax cuts and subsidies to boost consumption. However, how effective these policies are is a matter of some debate. Previous studies have traditionally focused on relatively poor families because they have higher marginal propensity to consume (MPC) and therefore fiscal policy oriented to such families should be more effective (Galí et al., 2007, Morita 2015). Carroll et al. (2014) further show that the more inequality, the higher aggregate MPC in response to temporary income shocks. These studies follow Campbell and Mankiw (1989, 1990) in describing the poor as those who consume all their income, namely, hand-to-mouth (HtM) households, in contrast to households that do not do so and typically have greater wealth (non-HtM). Wealthy or non-HtM households have low MPC. However, such studies have neglected the possibility that even wealthy households may also have high MPC. The idea is that some wealthy households may have a large amount of illiquid assets but few liquid assets, versus households that have both. These families do not usually liquidify their asset holdings to make consumption smoother, and they therefore tend to consume more in response to a temporary income shock (due to tax cuts or subsidies). Kaplan and Violante (2014a, 2014b) formalize this scenario and re-categorize this group of households as “wealthy HtM households.” Such households are wealthy in terms of total wealth but are HtM because they consume almost all their income.
Our first contribution is to re-examine the strategy for selecting types of households and quantifying the shares of different households. We focus on the consumption behavior of urban households and exclude those living in rural areas, as the former have more reliable data and regular income flows. We differ from previous studies of China in that we use four rounds of China Households Finance Survey (CHFS) data (from 2011, 2013, 2015, 2017) and perform a more thorough analysis by comparing different selection criteria. We consider the following concerns. First, Chinese households are more prone to savings and keep more liquid assets. Second, the liquidity of assets is slightly different compared other countries. In particular, we take time deposits, bank issued investment products, and treasury bonds as liquid assets because they have much lower returns and higher liquidity than real estate, the main component of illiquid assets in China. We apply different thresholds of liquid assets over yearly income ratio to determine which households are HtM, complemented by the consumption over income ratio, which is also used in Kaplan and Violante (2014). We find a significantly higher threshold of liquid assets over yearly income ratio, 1/4, than has been used in the literature (1/24). Considering real estate as the main component of illiquid assets, we also use the net value of housing (total market value minus debt and mortgage) to determine whether a household is wealthy.
With this selection strategy, we find the following evidence from Chinese urban households. First, the wealthy HtM share is about 36.7%, higher than the upper bounds estimated by He and Zang (2016) and Cui and Feng (2017). We then estimate the heterogeneity of consumption behavior over different types of households. The estimated consumption income elasticities for poor HtM and wealthy HtM households are 4.4% and 5.9% higher than wealthy non-HtM households, respectively. The MPCs to temporary income for poor HtM and wealthy HtM households are 0.069 and 0.09, compared to 0.045 for wealthy non-HtM households.
Another contribution of the paper is its recognition of the fact that most households in China must save a high down payment to buy real estate. These households have relatively more liquid assets and negligible illiquid assets. They have smaller MPC compared to wealthy non-HtM households, as shown in a previous study (Zang and Zhang, 2018). Their consumption income elasticity is also 2.7% lower than that of wealthy non-HtM households.
Our study has several policy implications. First, we show that the share of wealthy HtM households is larger than previously reported in urban China. These households have high MPC and should be targeted by policies intended to boost aggregate consumption. Second, there is a significant group of poor non-HtM households in China that should not be ignored.

The construction of transportation infrastructure is a leading factor in economic development. In the last 10 years, China has made considerable progress in developing the infrastructure for its high-speed railway, which is now the world‘s largest and fastest rail network. The network characteristics of transport infrastructure can improve spatial accessibility by reducing the transportation costs. Transport infrastructure can also increase the free flow of innovation and lead to innovation spillover across regions (Krugman, 1991). In general, if transportation infrastructure leads to a one-way flow of innovation factors, it can be seen to have had an agglomeration effect on regional innovation and a negative spillover effect in terms of space. If it leads to the two-way flow of innovation factors, it can be seen to have had an innovation diffusion effect and a positive spillover effect in terms of space (Cantos et al., 2005). Although the literature has mostly focused on the macro-economic effects of high-speed rail, a few studies have focused on high-speed rail from the perspective of heterogeneous firm theory and analyzed the mechanism of the innovation incentives for firms. The extension of the high-speed rail network has improved the accessibility of the major cities in China, and had innovation “spillover effects” on the cities along the lines. In addition, the extension of the high-speed railway has strengthened the foundations for innovation in the central cities through economic agglomeration, and thus had a “siphon effect” in transferring high-end economic factors from the cities along the line to the central cities.
In this paper, we use the firms in cities that joined the high-speed rail network in 2008-2012 as our research object for conducting quasi-natural experiments to determine the effects of high-speed rail on the innovative performance of firms along the lines. First, our results show that in general, the number of patent applications and the average annual patent citations of the treatment firms are significantly higher than those of the control group of firms without access to high-speed rail. Specifically, there is a significant positive effect on the number of patent applications for inventions, utility models, and designs, with the increase in the number of patent applications for utility models being greater than that for the others. Second, gaining access to high-speed rail has a dynamic effect on firm innovation, showing positive innovation effects within one to three years. Notably, the amount of patent applications reaches a local peak after one year, and the average patent citations reach a local peak after three years. Third, the distance from the innovation center has a partial “U”-shaped relationship with the effect on innovation, such that the positive effect is greater for cities within 100 km of a railway line than those 200-300 km away from a line. Fourth, our analysis of the intermediary mechanism shows that firm-level variables such as the degree of competition, entry and exit, change in profit, and change in human capital, and city-industry level variables such as the industry concentration, transportation volume, investment volume, and market potential can explain the changes in firms' innovation behavior. Fifth, in cities closer to the technological frontier, the more competitive industries can achieve greater positive innovation.
This paper makes the following contributions. (1) The literature has mainly explored the effects of transport infrastructure at the macro level, and we thus lack information on the micro-level effects of transport infrastructure on firm behavior. Our findings address this gap by revealing the micro-mechanism of the impact of high-speed rail on firm innovation in cities on the network. (2) Existing studies on the micro effects of transport have potential endogeneity issues (Li and Tang, 2015; Zhang et al., 2018). In this paper, these endogeneity issues are resolved by using the high-speed railway network as a quasi-natural experiment. (3) We provide empirical evidence of the positive impact of transport infrastructure on economic growth. Specifically, we show that infrastructure construction, including high-speed rail, can achieve the dual goals of upgrading the innovation “hardware” and “software.”
Our findings have a number of policy implications. First, the government should accelerate the supply side of the structural reform of transport infrastructure to improve the level of economic development. In this regard, a possible implementation path would be to increase the supply of high-quality infrastructure and the construction of transportation infrastructure, especially in relatively backward areas. Second, the government should accelerate the development of an innovative economy and focus on the factors that drive innovation in the central cities. Improving the quality of the railway infrastructure in underdeveloped cities can also help narrow the development gap between different regions. Third, the government should accelerate the transformation of the modes of innovation, and seek to improve the quality and the level of application of innovation. Rather than directly stipulating the number and speed of patent applications, the government should pay more attention to the dynamic monitoring of the quality of innovation and the level of application. Overall, enhancing the effectiveness of the industrial policies will promote innovation and economic development.

Investment bank is one kind of the most important intermediaries in direct financing. As the representative of security issuer, an investment bank's competitiveness partly originates from its networks of relationship investors, which have been rarely discussed in the literature. Based on the complete records of institutional investors' participation in Chinese IPOs‘ book-building process, we have designed a new dynamic measure of the relationship between an investment bank and institutional investors. Furthermore, we have analyzed in detail how this relationship affects IPO pricing. The main results are as follows. (1) An investment bank can drive related investors to take part in the IPO process and submit high bids that are consistent with the underwriter analyst’s valuation. This implies that the investment bank can alleviate the uncertainty of investor participation in IPO auctions by its networking ability. (2) The boost from related investors can significantly increase IPOs' offering price and the under-writing fee paid to the investment bank. However, when the trading price converges to its intrinsic value gradually in the long run, the appearance of more related investors in the IPO process will predict lower long-term return to investors. (3) The relationship between the investment bank and institutional investors is reciprocal in essence. Once the investment bank is granted allocation discretion, it will be inclined to allocate money left on the table to its related investors. The stronger the relationship, the larger probability that bids will be considered affective. Given that their bids are judged affective, related investors' demand for new issues will be satisfied preferentially.
This paper makes three contributions to the literature. First, we present a new mechanism for interest distribution in the IPO process. The traditional literature usually assumes that the principal-agent problem exists between the IPO issuer and the investment bank (IB) responsible for the underwriting. The IB is inclined to underprice the IPO relative to its intrinsic value. Then, due to its allocation discretion, it will allocate the underpriced new issues to its connected investors, who will transfer part of the revenues to the underwriter, such as in the form of brokerage fees. This quid pro quo thus conflicts with the issuer's interests. However, if underwriting fees gained by the IB are positively related to the IPO offering price, the interest of the IB should be bundled with the IPO issuer and there will be no serious principal-agent problem. We find that the IB has a significant incentive to overprice the IPO according to the high bids of its connected institutional investors, so the issuer can obtain more IPO proceeds. In addition, the IB can favor connected investors over time. For example, once underwriting IBs are granted allocation discretion, they will allocate underpriced new shares to their connected investors who have supported the bidding of prior IPOs.
Second, this paper provides a new method to measure the relationship between investment banks and institutional investors, which considers both IPO issuers' participation and the relative bidding prices of investors. Based on brokerage fee data, the traditional method can only identify one special investor (fund)-underwriter relation. In contrast, our new method can measure underwriters' connection with all kinds of investors. Furthermore, compared to the method based on only participation frequency, our method also considers whether investors' bidding prices are consistent with underwriters' expectations, which means that connections can be more accurately measured.
Third, our findings extend the understanding of the efficiency of IPO auction methods. The classical literature usually concludes that auction methods lack efficiency in pricing IPOs because the underwriters have no allocation discretion, which is a key instrument to encourage investors to produce information on IPOs in the book-building process. One problem in IPO auction is investors' participation uncertainty. However, our empirical research finds that underwriters can solve this problem through their connections with institutional investors. It suggests that networks between IBs and investors can replace underwriters' allocation discretion to some extent. Furthermore, this paper shows that an underwriter will be inclined to allocate underpriced new issues to its connected investors once it gains allocation power. Thus, from the perspectives of fairness and efficiency, IPO auction methods will perform better than the traditional literature predicts if the function of the underwriter-investor relationship is considered seriously.

The impact of investor attention on asset pricing is critically important for the functioning of stock markets. This paper examines the effects of a type of attention-grabbing event, Trading Information Disclosure from China's stock exchanges, on investors' trading behavior and stock price performance.
It is difficult to empirically measure the impact of investor attention on stock prices because events that attract attention are often accompanied by the release of other valuable information on listed companies or special events related to them that contain information about the value of stocks. We use a natural experiment setting based on Trading Information Disclosure and upper price limits on China's stock exchanges. The natural experiment design eliminates confounding factors that occur simultaneously with attention-grabbing events and allows us to cleanly identify the impact of investor attention.
The treatment sample includes all A-share listed stocks that hit the upper price limits and were disclosed by Trading Information Disclosure on the Shanghai and Shenzhen Stock Exchanges from 2007 to 2015. The control sample includes all other stocks that hit the upper price limits without being disclosed. The advantage of this setting is that it can eliminate the interference of other factors.
The findings of this paper are threefold. (1) The treatment group has a significantly higher Baidu search index and excess turnover ratio during the event period, which indicates that the stocks disclosed under Trading Information Disclosure receive significantly more market attention than stocks in the control group. (2) Compared with the control group, the treatment group obtains more net inflows of small deals but fewer big deals. The treatment group also has lower excess return and idiosyncratic volatility in the short term and lower probability of price reversal in the long term. Further research also indicates that investor attention triggered by Trading Information Disclosure decreases the probability of price reversal by reducing market information asymmetry. (3) These effects are more significant for stocks bought by well-known security sales departments, which attract more market attention. The empirical results show that investor attention attracted by regulatory information disclosure reduces market information asymmetry and inhibits irrational price fluctuation.
Overall, investor attention, as an important factor in investor trading behavior, has a significant impact on asset prices. This paper shows that Trading Information Disclosure improves market efficiency, reduces information asymmetry, and decreases excessive stock price volatility. Academics, market regulators, and financial industry practitioners should be aware of the importance of reducing the irrational component of asset prices and take action to reduce market information asymmetry, inhibit irrational market volatility, and improve market pricing efficiency by constructing standard and appropriate information disclosure systems and investor education systems.
This paper contributes to the literature in three aspects. First, the natural experiment design allows us to more precisely observe the impact of investor attention on stock prices. Because random factors instead of stock fundamentals determine whether a stock that hits the upper price limits will be disclosed by Trading Information Disclosure, we can examine the impact of investor attention on stock prices more accurately.
Second, the literature argues that attention-grabbing events increase the trading of noise investors, which reduces market efficiency. However, a few studies have argued that investor attention due to regulatory information disclosure can reduce information asymmetry and improve market efficiency. This paper finds that Trading Information Disclosure makes price fluctuations more efficient. This paper thus supplements the literature about the beneficial effects of investor attention on the market.
Third, Trading Information Disclosure is an important part of the stock market information disclosure system in China. The information disclosed attracts the attention of a large number of institutional and individual investors because of its timeliness, authority, and unique value in trading. However, domestic researchers have not fully examined its effectiveness as an information disclosure system. This paper shows that Trading Information Disclosure achieves the role of reducing market information asymmetry and reducing excessive fluctuation of stock prices.