The Dynamics of Volatilities between Stock Market &Real Estate

MarketCHEN Rui 1 TONG Guangrong 2 DENG Qizhong 2

1 Department of Real Estate & Construction, The University of Hong Kong. HKSAR

2 Economics and Management School of Wu Han University, Hubei, Wuhan, China

Introduction

• 1 Introduction

• With a focus on the instability of China’s stock market and real estate market during the period between 2001 and 2008, this paper aims to apply the econometric model to investigate the fluctuating transformation effect between

the two economic markets.

Literature Review

• 2 Literature Review• Since the 90s of the 20th century, many scholars had con

ducted extensive investigation on the relationship between stock market and real estate market.

• Many investigations from China ignored a significant feature – there are two obvious different volatility timeframes between China’s stock market and real estate market and during which their development speeds, fluctuating inte

nsity and interactive impact varied greatly.

Empirical Analysis

• 3.1Data Description • The monthly board turnover of SSE A & B shares ( WIN

D DB )• The monthly sales volume of the commercial apartments

(DB of China economic internet )• LNH and LNS stand for the new series of transformed sa

les volume and trading volume after Logarithmic transformation.

Empirical Analysis

• 3.2 Stationary and Cointegration Test

Table 1 Unit root test of LNH and LNS

Sample Variable Type (C,T,K) ADF-statistics

2001.5 － 2006.12

LNH (C,T,11) -2.287843

DLNH (C,T,19) -3.649104**

LNS (C,0,11) -1.469111

DLNS (C,T,28) -5.07593***

2007.2 － 2008.9

LNH (C,T, 0) -2.514424

DLNH (C,T, 0) -4.463617**

LNS (C,T, 0) -2.490856

DLNS (C,0, 0) -4.01359***

Note: ***, **, * stand for rejection of the non-hypothesis at 1%, 5% and 10% significant level. (C, T, K) stands for the unit root test equation. D is the first order difference.

Empirical Analysis

Table 2 Johansen Cointegration test of LNH and LNS

Sample Hypothesized

EigenvalueTrace 0.05

Probability

No. of CE(s) StatisticCritical Value

2001.5 －2006.12

None* 0.320866 19.60148 15.49471 0.0113

At most 1 0.00508 0.254660 3.841466 0.6138

　　

Trace test indicates 1 cointegration at the 0.05 level

Trend assumption: Linear deterministic trend

2007.2 －2008.9

None 0.270538 5.516710 15.49471 0.7518

At most 1 0.02892 0.469544 3.841466 0.4932

　 Trace test indicates no cointegration at the 0.05 level

Trend assumption: Linear deterministic trend

Empirical Analysis

• 3.3 Granger Causality Test

Table 3 Granger Causality test of LHS and LNH

Sample Null Hypothesis Lags

Obs F-StatisticProbabilit

y

2001.5 －2006.12

LNS does not Granger Cause LNH

12 51 1.19055 0.3398

LNH does not Granger Cause LNS

12 51 5.11081*** 0.0002

2007.2 －2008.9

LNS does not Granger Cause LNH

2 17 0.43283 0.6584

LNH does not Granger Cause LNS

2 17 1.13164 0.3546

Empirical Analysis

• 3.4 Generalized Impulse Response Function

Figure 1 GIR function between stock market and real estate market during May. 2001 and Dec.2006

Figure 2 GIR function between stock market and real estate market during Feb. 2007 and Sep. 2008

Conclusion

• In the two separate time regions, China stock market and real estate market show obvious inconsistency in linkage graph.

• In the two continuous time spans from May.2001 to September.2008, there is a one-way causal relationship between rising real estate market and China stock market do

wnturn, merely in the first time region.

References

1] Sheng Songcheng,Li Anding,Liu Huina. Analysis of the correlation between real estate cycle and financial statues [J]. Shanghai Finance, 2005, 6:4-7.

[2] Zhao Jian. Comparison of the price fluctuation in real estate and stock markets[J]. Shandong Social Sciences, 2007, 2:112-116.[3] Shen Jun,Bai Qinxian. The volatility and relation of fictitious economy in China[J]. Finance & Trade Economics, 2008, 9:22-27.[4] Hu Xiaofang,Wang Xiaoyin. Comparison of the wealth effect in housing and stock price[J]. Lanzhou Academic Journal,2008,1:50-52.[5] Xie Baohua. An economics analysis of the sheep flock effect in China's real estate market and stock market[J]. Journal of Guangdong Univer

sity of Business Studie, 2008.2:34-39.[6] Wang Guogang. An analysis of the excess liquidity in China's banking system[J]. Finance & Trade Economics, 2008, 6:5-15.[7] Stone, D. Ziemba, W.T.Land and Stock Prices in Japan[J].Journal of Economic Perspectives,Summer 1993, 149-165.[8] Okunev,J.&P.Wilson.The Causal Relationship Between Real Estate and Stock Markets[J].Journal of Real Estate Finance & Economics,2000,

21:251 － 260.[9] Chen, N, K..Asset price fluctuations in Taiwan: Evidence from stock and real estate price 1973 to 1992[J].Journal of Asian Economics, 2001,

12:215-232.[10]Pesaran,M. Hashem & Yongcheol Shin..Impulse response analysis in linear multivariate Models [J].Economics Letters, 1998, 58:17-29.[11]Cochrane,J.H.Time Series for Macroeconomics and Finance[M].University of Chicago,2005.[12]Engle R F,Granger C.W.J..Cointegration and Error-Correction Representation,Estimation and Testing[J].Ecomometrica,1987,2:251-276.[13]Granger C.W.J.Some Recent Developments in A Concept of Causality[J].Journal of Econometrics,1988,39:199-211.[14]Johansen,Sorer and K.,Juselius..Maximum Likelihood Estimation and Inference on Cointegration with Application to the Demand for Money

[M].Oxford Bulletin of Economics andStatistics,1990,52:169-210.[15]Johansen,Soren.Statistical Analysis of Cointegration Vector[J].Journal of Economic Dynamics and control,1988,12:231-254.[16] Stock J.H and Waston,M.W.A simple MLE of Cointegrating vectors in higher order integrated systems[N],1989,NBER working paper.