1. The Dynamics of Volatilities between Stock Market &Real Estate Market CHEN 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

2. Introduction 1 Introduction With a focus on the instability of Chinas 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.

3. Literature Review 2 Literature Review Since the 90s of the 20 th century, many scholars had conducted 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 Chinas stock market and real estate market and during which their development speeds, fluctuating intensity and interactive impact varied greatly.

4. Empirical Analysis 3.1Data Description The monthly board turnover of SSE A & B shares ( WIND DB ) The monthly sales volume of the commercial apartments (DB of China economic internet ) LNH and LNS stand for the new series of transformed sales volume and trading volume after Logarithmic transformation.

5. Empirical Analysis 3.2 Stationary and Cointegration Test Table 1 Unit root test of LNH and LNS Sample VariableType (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.

6. Empirical Analysis Table 2 Johansen Cointegration test of LNH and LNS Sample Hypothesized Eigenvalue Trace0.05 Probability No. of CE(s)StatisticCritical Value 2001.5 2006.12 None* 0.320866 19.6014815.494710.0113 At most 1 0.00508 0.2546603.8414660.6138 Trace test indicates 1 cointegration at the 0.05 level Trend assumption: Linear deterministic trend 2007.2 2008.9 None0.270538 5.51671015.494710.7518 At most 10.02892 0.4695443.8414660.4932 Trace test indicates no cointegration at the 0.05 level Trend assumption: Linear deterministic trend

7. Empirical Analysis 3.3 Granger Causality Test Table 3 Granger Causality test of LHS and LNH Sample Null HypothesisLagsObsF-StatisticProbability 2001.5 2006.12 LNS does not Granger Cause LNH 12511.190550.3398 LNH does not Granger Cause LNS 12515.11081***0.0002 2007.2 2008.9 LNS does not Granger Cause LNH 2170.432830.6584 LNH does not Granger Cause LNS 2171.131640.3546

8. 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

9. 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 downturn, merely in the first time region.

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